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46-557: The Fed Challenge begins with regional and district rounds of competition. Each Fed Challenge team, consisting of three to five students, presents an analysis of the current state of the economy backed by current economic data and a monetary policy recommendation for the Federal Open Market Committee (FOMC). Following the presentation, judges question each team about their presentation and their knowledge of macroeconomic theory. Federal Reserve Bank economists and officers judge

92-516: A Governor in 2003 of the inflation targeting approach. He explained that even a central bank like the Fed, which does not orient its monetary policies around an explicit, published inflation target, nonetheless takes account of its goal of low and stable inflation in formulating its interest rate targets. Bernanke summed up his overall assessment of inflation targeting as follows: Inflation targeting, at least in its best-practice form, consists of two parts:

138-535: A confidential report to the bank and a summary statement for the bank's annual report. Some members of Congress continue to advocate a more public and intrusive GAO audit of the Federal Reserve System, but Federal Reserve representatives support the existing restrictions to prevent political influence over long-range economic decisions. The Federal Reserve officially identifies Districts by number and Reserve Bank city. The New York Federal Reserve district

184-468: A dividend out of the Reserve Bank's earnings but otherwise is quite different from common stock in a private corporation. It may not be traded, transferred or borrowed against, and it grants no ownership of the Reserve Bank's surplus. A bank's stock ownership does not give it proportional voting power to choose the Reserve Bank's directors; instead, each member bank receives three ranked votes for six of

230-677: A manner consistent with these objectives and with the nation's broader economic objectives. Under the Federal Reserve Act, the Chairman of the Board of Governors of the Federal Reserve System must appear before Congressional hearings at least twice per year regarding "the efforts, activities, objectives and plans of the Board and the Federal Open Market Committee with respect to the conduct of monetary policy". The statute requires that

276-586: A policy framework of constrained discretion and a communication strategy that attempts to focus expectations and explain the policy framework to the public. Together, these two elements promote both price stability and well-anchored inflation expectations; the latter in turn facilitates more effective stabilization of output and employment. Thus, a well-conceived and well-executed strategy of inflation targeting can deliver good results with respect to output and employment as well as inflation. Although communication plays several important roles in inflation targeting, perhaps

322-635: A portfolio of government-issued or government-guaranteed securities that is shared among all of the Reserve Banks. The Federal Reserve Banks fund their own operations, primarily by distributing the earnings from the System Open Market Account. Expenses and dividends paid are typically a small fraction of a Federal Reserve Bank's revenue each year. The banks may retain part of their earnings in their own surplus funds that are limited to $ 7.5 billion, system-wide. The rest must be transferred via

368-458: A special meeting or a telephone conference, or to vote on a proposed action by proxy . At each regularly scheduled meeting, the Committee votes on the policy to be carried out during the interval between meetings. Attendance at meetings is restricted because of the confidential nature of the information discussed and is limited to Committee members, nonmember Reserve Bank presidents, staff officers,

414-762: A voting membership. All of the Reserve Bank presidents, even those who are not currently voting members of the FOMC, attend Committee meetings, participate in discussions, and contribute to the Committee's assessment of the economy and policy options. The Committee meets eight times a year, approximately once every six weeks. By law, the FOMC must meet at least four times each year in Washington, D.C. Since 1981, eight regularly scheduled meetings have been held each year at intervals of five to eight weeks. If circumstances require consultation or consideration of an action between these regular meetings, members may be called on to participate in

460-420: Is Scott v. Federal Reserve Bank of Kansas City , in which the distinction is made between Federal Reserve Banks, which are federally created instrumentalities, and the Board of Governors, which is a federal agency. The original Federal Reserve Act provided starting capital for the Reserve Banks by requiring the participating banks to purchase stock in a Reserve Bank in proportion to their assets. This stock pays

506-586: Is a committee within the Federal Reserve System (the Fed) that is charged under United States law with overseeing the nation's open market operations (e.g., the Fed's buying and selling of United States Treasury securities ). This Federal Reserve committee makes key decisions about interest rates and the growth of the United States money supply. Under the terms of the original Federal Reserve Act , each of

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552-496: Is a regional bank of the Federal Reserve System , the central banking system of the United States. There are twelve in total, one for each of the twelve Federal Reserve Districts that were created by the Federal Reserve Act of 1913. The banks are jointly responsible for implementing the monetary policy set forth by the Federal Open Market Committee , and are divided as follows: Some banks also possess branches , with

598-594: Is coordinated with the U.S. Treasury , which has responsibility for formulating U.S. policies regarding the exchange value of the dollar. The Committee consists of the seven members of the Federal Reserve Board , the president of the New York Fed , and four of the other eleven regional Federal Reserve Bank presidents, serving one-year terms. The Chair of the Federal Reserve has been invariably appointed by

644-727: Is not proprietary. In Lewis v. United States , the United States Court of Appeals for the Ninth Circuit stated that: "The Reserve Banks are not federal instrumentalities for purposes of the FTCA [the Federal Tort Claims Act ], but are independent, privately owned and locally controlled corporations." The opinion went on to say, however, that: "The Reserve Banks have properly been held to be federal instrumentalities for some purposes," such as anti-bribery law. Another relevant decision

690-500: Is the largest by asset value. San Francisco, followed by Kansas City and Minneapolis, represent the largest geographical districts. Missouri is the only state to have two Federal Reserve Banks (Kansas City and St. Louis). California, Florida, Missouri , Ohio , Pennsylvania , Tennessee , and Texas are the only states which have two or more Federal Reserve Bank branches seated within their states, with Missouri, Pennsylvania, and Tennessee having branches of two different districts within

736-483: Is the principal organ of United States national monetary policy . The Committee sets monetary policy by specifying the short-term objective for the Fed's open market operations, which is usually a target level for the federal funds rate (the rate that commercial banks charge between themselves for overnight loans). The FOMC also directs operations undertaken by the Federal Reserve System in foreign exchange markets , although any intervention in foreign exchange markets

782-568: The Board of Governors . Their corporate structure reflects the concurrent interests of the government and the member banks, but neither of these interests amounts to outright ownership. Legal cases involving the Federal Reserve Banks have concluded that they are "private", but can be held or deemed as "governmental" depending on the particular law at issue. In United States Shipping Board Emergency Fleet Corporation v. Western Union Telegraph Co. ,

828-453: The Federal Reserve System in which several Federal Reserve Banks would provide liquidity to banks in different regions of the country. The Federal Reserve Banks opened for business in November 1914. The Reserve Banks are organized as self-financing corporations and empowered by Congress to distribute currency and regulate its value under policies set by the Federal Open Market Committee and

874-502: The Board of Governors to the Secretary of the Treasury, who then deposits it to the Treasury's general fund. When a Reserve Bank's earnings are insufficient to cover its expenses and dividends, it introduces a deferred asset on its books to be realized from future earnings. The Reserve Banks were historically capitalized through deposits of gold, and in 1933 all privately held monetary gold

920-751: The Chairman appear before the House Committee on Financial Services in February and July of odd-numbered years, and before the Senate Committee on Banking, Housing, and Urban Affairs in February and July of even-numbered years. There is a very strong consensus against basing selection of committee members primarily on the candidate's political views. The committee's practice of interest rate targeting has been criticized by some commentators who argue that it may risk an inflationary bias. Possible alternative rules that enjoy some support among economists include

966-649: The FOMC Committee membership changes at the first regularly scheduled meeting of the year. 2025 Members - New York, Chicago, Boston, St. Louis, Kansas City 2025 Alternate Members - New York†, Cleveland, Philadelphia, Dallas, Minneapolis †For the Federal Reserve Bank of New York, the First Vice President is the alternate for the President. Federal Reserve Banks A Federal Reserve Bank

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1012-546: The Federal Reserve Challenge participation has shrunk to three district participants (as of 2010). In 2009, the National Finals consisted of Choate Rosemary Hall (Boston District), Brebuef Jesuit Preparatory Academy (Chicago District), Montclair High School (New York District), and Collegiate School (Richmond District). Federal Open Market Committee The Federal Open Market Committee ( FOMC )

1058-554: The Federal Reserve System's accounting principles. The banks are also subject to two types of external auditing. Since 1978 the Government Accountability Office (GAO) has conducted regular audits of the banks' operations. The GAO audits are reported to the public, but they may not review a bank's monetary policy decisions or disclose them to the public. Since 1999 each bank has also been required to submit to an annual audit by an external accounting firm, which produces

1104-495: The Federal Reserve banks was authorized to buy and sell in the open market bonds and short term obligations of the United States Government , bank acceptances, cable transfers, and bills of exchange. Hence, the reserve banks were at times bidding against each other in the open market. In 1922, an informal committee was established to execute purchases and sales. The Banking Act of 1933 formed an official FOMC. The FOMC

1150-531: The Manager of the System Open Market Account , and a small number of Board and Reserve Bank staff. Before each regularly scheduled meeting of the FOMC, System staff prepare written reports on past and prospective economic and financial developments that are sent to Committee members and to nonmember Reserve Bank presidents. Reports prepared by the Manager of the System Open Market Account on operations in

1196-451: The Reserve Bank's nine directors, who are subject to qualifications defined in the Federal Reserve Act. If a Reserve Bank were ever dissolved or liquidated, the Act states that members would be eligible to redeem their stock up to its purchase value, while any remaining surplus would belong to the federal government. Regarding the structural relationship between the twelve Federal Reserve banks and

1242-671: The Reserve Banks operate as distinct financial entities, they participate each April in an interdistrict settlement process that has three purposes: settling the payment balances that the Reserve Banks owe each other; allocating ownership of the SOMA portfolio; and establishing uniform gold certificate backing for Federal Reserve Notes. This process connects the Reserve Banks' different functions – monetary policy, payment clearing and currency issue – as an integrated system. The Federal Reserve Banks conduct ongoing internal audits of their operations to ensure that their accounts are accurate and comply with

1288-452: The Reserve Banks to pay interest on member bank reserves, while the FAST Act of 2015 imposed an additional dividend limit equal to the yield determined in the most recent 10-year Treasury Note auction. Although all Reserve Banks have the legal authority to conduct open-market operations, in practice only the Reserve Bank of New York does so. It manages the System Open Market Account (SOMA),

1334-416: The System Open Market Account also reports on account transactions since the previous meeting. After these reports, the Committee members and other Reserve Bank presidents turn to policy. Typically, each participant expresses their own views on the state of the economy and prospects for the future and on the appropriate direction for monetary policy. Then each makes a more explicit recommendation on policy for

1380-431: The U.S. Supreme Court stated, "Instrumentalities like the national banks or the federal reserve banks, in which there are private interests, are not departments of the government. They are private corporations in which the government has an interest." The United States has an interest in the Federal Reserve Banks as tax-exempt federally created instrumentalities whose profits belong to the federal government, but this interest

1426-433: The central bank's objectives, plans, and assessments of the economy could pay increasing dividends in the future. In keeping with his 2003 speech as Governor, Bernanke as Chairman attempted to promote greater transparency in Fed communications. The Fed now publicly indicates the range within which it would like to see future inflation. Members of the FOMC as of November 1, 2024 : Federal Reserve Bank Rotation on

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1472-448: The coming intermeeting period (and for the longer run, if under consideration). Finally, the Committee must reach a consensus regarding the appropriate course for policy, which is incorporated in a directive to the Federal Reserve Bank of New York—the Bank that executes transactions for the System Open Market Account. The directive is cast in terms designed to provide guidance to the Manager in

1518-425: The commercial (member) banks, political science professor Michael D. Reagan explains that, the "ownership" of the Reserve Banks by the commercial banks is symbolic; they do not exercise the proprietary control associated with the concept of ownership nor share, beyond the statutory dividend, in Reserve Bank "profits." ... Bank ownership and election at the base are therefore devoid of substantive significance, despite

1564-457: The committee as its chair since 1935, solidifying the perception of the two roles as one. The Federal Open Market Committee was formed by the Banking Act of 1933 (codified at 12 U.S.C.   § 263 ) and did not include voting rights for the Federal Reserve Board of Governors . The Banking Act of 1935 revised these protocols to include the Board of Governors and to closely resemble

1610-430: The conduct of day-to-day open market operations. The directive sets forth the Committee's objectives for long-run growth of certain key monetary and credit aggregates. It also sets forth operating guidelines for the degree of ease or restraint to be sought in reserve conditions and expectations with regard to short-term rates of growth in the monetary aggregates. Policy is implemented with emphasis on supplying reserves in

1656-519: The degree of influence by private interests, the balancing of regional economic concerns, the prevention of financial panics, and the type of reserves used to back currency. A financial crisis known as the Panic of 1907 threatened several New York banks with failure, an outcome avoided through loans arranged by banker J. P. Morgan . Morgan succeeded in restoring confidence to the New York banking community, but

1702-546: The district competitions. One Fed Challenge team from each of the four participating Federal Reserve Districts competes at the national competition in Washington, D.C. FOMC members — Federal Reserve Governors and Reserve Bank Presidents — judge the national finals. The competition was created in 1994 by Lloyd Bromberg, the Director of Education Programs at the New York Fed. Since its peak in 1998 with ten district participants,

1748-624: The domestic open market and in foreign currencies since the last regular meeting are also distributed. At the meeting itself, staff officers present oral reports on the current and prospective business situation, on conditions in financial markets, and on international financial developments. In its discussions, the Committee considers factors such as trends in prices and wages, employment and production, consumer income and spending, residential and commercial construction, business investment and inventories, foreign exchange markets, interest rates, money and credit aggregates, and fiscal policy. The Manager of

1794-429: The most important is focusing and anchoring expectations. Clearly there are limits to what talk can achieve; ultimately, talk must be backed up by action, in the form of successful policies. Likewise, for a successful and credible central bank like the Federal Reserve, the immediate benefits of adopting a more explicit communication strategy may be modest. Nevertheless, making the investment now in greater transparency about

1840-578: The panic revealed weaknesses in the U.S. financial system, such that a private banker could dictate the terms of a bank's survival. In other parts of the country, clearing houses briefly issued their own money notes to carry on business. In response, Congress formed the National Monetary Commission to investigate options for providing currency and credit in future panics. Based on the Commission's findings and other proposals, Congress established

1886-534: The present-day FOMC and was amended in 1942 to give the current structure of twelve voting members. Four of the Federal Reserve Bank presidents serve one-year terms on a rotating basis. The rotating seats are filled from the following four groups of banks, one bank president from each group: Boston, Philadelphia, and Richmond; Cleveland and Chicago; Atlanta, St. Louis, and Dallas; and Minneapolis, Kansas City, and San Francisco. The New York President always has

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1932-840: The same state. In the 12th District, the Seattle Branch serves Alaska, and the San Francisco Bank serves Hawaii. New York, Richmond, and San Francisco are the only banks that oversee non- U.S. state territories. The System serves these territories as follows: the New York Bank serves the Commonwealth of Puerto Rico and the U.S. Virgin Islands; the Richmond Bank serves the District of Columbia; the San Francisco Bank serves American Samoa, Guam, and

1978-471: The superficial appearance of private bank control that the formal arrangement creates. The Federal Reserve Banks offer various services to the federal government and the private sector: Historically the Reserve Banks compensated member banks for keeping reserves on deposit (and therefore unavailable for lending) by paying them a dividend from earnings, limited by law to 6 percent. The Emergency Economic Stabilization Act (EESA) of 2008 additionally authorized

2024-516: The traditional monetarist formula of targeting stable growth in an appropriately chosen monetary aggregate, and inflation targeting , now practiced by many central banks . Under inflationary pressure in 1979, the Fed temporarily abandoned interest rate targeting in favor of targeting non-borrowed reserves. It concluded, however, that this approach led to increased volatility in interest rates and monetary growth, and reversed itself in 1982. Former Fed Chairman Ben Bernanke spoke sympathetically as

2070-729: The whole system being headquartered at the Eccles Building in Washington, D.C. The Federal Reserve Banks are the most recent institutions that the United States government has created to provide functions of a central bank. Prior institutions have included the First (1791–1811) and Second (1818–1824) Banks of the United States, the Independent Treasury (1846–1920) and the National Banking System (1863–1935). Several policy questions have arisen with these institutions, including

2116-489: Was transferred to them under Executive Order 6102 . This gold was in turn transferred to the Treasury under the Gold Reserve Act of 1934 in exchange for gold certificates that may not be redeemed under current law. The Reserve Banks continue to report these certificates as assets, but they do not represent direct gold ownership and the Board of Governors has stated that "the Federal Reserve does not own gold." Although

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