Chapter 17 - Who's in charge here? In this chapter you will learn to explain the intent of Congress when it established the structure and purpose of the Federal Reserve System; describe how the structure of the Federal Reserve has evolved over time; analyze the controversies and benefits regarding central bank independence. | Chapter 17 Who’s in Charge Here? Copyright © 2009 Pearson Addison-Wesley. All rights reserved. Learning Objectives • Explain the intent of Congress when it established the structure and purpose of the Federal Reserve System • Describe how the structure of the Federal Reserve has evolved over time • Analyze the controversies and benefits regarding central bank independence Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 17-2 Introduction • Monetary policy is the responsibility of the Federal Reserve • Basic question—“to whom is the Federal Reserve responsible?” • Although the President appoints the seven members of the Board of Governors, the Fed is not responsible to executive branch Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 17-3 1 Introduction (Cont.) • Congress created Fed in 1913 and has sole authority to alter its mandate • Since a large number of commercial banks are members of Fed, it has been suggested the Fed is answerable to private banks that are members Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 17-4 Formal Structure of the Federal Reserve System • Organization of the Fed is an excellent example of decentralization and blending of public/private authority • Power is deliberately widely diffused so no person, group, or sector can exert leverage to dominate monetary policy Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 17-5 Formal Structure of the Federal Reserve System (Cont.) • Organization – Figure shows the formal structure of the Federal Reserve system – Board of Governors • 7 members appointed by US President with Senate approval for 14 year terms • No two members from same Federal Reserve district • Chairman of Board—selected by President from Board with 4 year term that does not coincide with presidential term Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 17-6 2 FIGURE The formal structure and policy organization of the Federal Reserve
