Federal Reserve System Learning Path

Purpose of the Federal Reserve System

The Federal Reserve System (the Fed) was created in 1913 to address banking panics and reduce the risk of bank runs that can destabilize the economy. Its purposes include serving as the central bank of the United States, helping maintain confidence and stability in the financial system, and providing essential financial services. The Fed is also tasked with supervising and regulating banking institutions and protecting consumer credit rights. In addition, the Fed conducts monetary policy to influence market interest rates and support national economic goals. Congress established a dual mandate: maximizing employment and stabilizing prices (commonly interpreted as about 2% average inflation). The Fed also aims to moderate long-term interest rates and strengthen the U.S. financial system by containing systemic risk. Operationally, it supports liquidity needs (including through its discount window and lender-of-last-resort role) and facilitates payments across regions through the national payments system.

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Fractional-reserve banking and bank runs

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