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Federal Reserve System

Definition

The Federal Reserve System (often referred to as the Fed) is the central banking system of the United States. It controls monetary policy with the aim of promoting economic stability.

Analogy

Think of the Federal Reserve System as a thermostat in your house. Just like how you'd adjust temperature for comfort, the Fed adjusts interest rates and money supply to keep our economy comfortable - not too hot (inflation), nor too cold (recession).

Related terms

Monetary Policy: This refers to actions taken by a country's central bank (like the Fed) to control money supply and achieve goals that promote sustainable economic growth.

Interest Rates: These are amounts charged by lenders or paid by borrowers based on percentages of loans or deposits. The Fed can raise or lower these rates to influence spending and saving behaviors.

Quantitative Easing: This is an unconventional monetary policy where a central bank purchases government securities or other securities from market in order to lower interest rates and increase money supply.