Uncovering the structure of the "US Federal Reserve" and the challenges under Trump's second term
The Federal Reserve was designed to operate independently of politics, but under Trump's second term, the Fed's role has faced unprecedented pressure and intervention.
August 26, 2568 The Federal Reserve System (Fed) is the heart of the global economic system. Because the United States is a financial superpower, the dollar is used as the primary currency for international trade and as a reserve currency for many nations. The Fed's decisions on interest rates, monetary policy, and bond purchases and sales all send shockwaves around the world.
The Federal Reserve was established by the Federal Reserve Act of 1913 to be independent of political power and to establish a financial system capable of responding effectively to stresses in the banking system. The Federal Reserve System is made up of the Board of Governors, a federal agency based in Washington, D.C., and 12 Federal Reserve Banks across the country.
It consists of 3 main parts:
- The Board of Governors of the Federal Reserve, a federal agency based in Washington, D.C.
- Twelve Federal Reserve Banks operate across the country.
- The Federal Open Market Committee (FOMC), which serves as the Federal Open Market Committee and helps set key U.S. monetary policy.
If we delve deeper into each section,
1. Board of Governors
It serves as the governing body of the central banking system. The board consists of seven members, or "governors," who serve alternating terms of 7 years, who are nominated by the President of the United States and confirmed by the United States Senate.
The Board will consist of the Chairman and Vice Chair, who play the highest role in setting policy direction. They may be appointed for one or more additional terms of four years. The Board will oversee the operations of the Federal Reserve System to promote its goals and fulfill its responsibilities to the Federal Reserve under the Federal Reserve Act, including overseeing the operations of 4 central banks.
2. Regional Federal Reserve Banks (12 Federal Reserve Banks)
Each central bank operates within its own specific geographic area or jurisdiction within the United States. Although it is overseen by the Federal Reserve Board, the Fed operates independently in many areas, such as:
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- Supervision and inspection of banks and other financial institutions
- Enforce federal consumer protection laws and fair lending laws while promoting local community development.
- Lending to financial institutions to create liquidity in the financial system
It also performs other functions, including promoting the security and efficiency of payment systems, distributing currency and coins to banks, operating electronic payment systems, and clearing checks, and acting as a government bank by providing services such as maintaining Treasury transactions and issuing and redeeming U.S. government securities.
3. Federal Open Market Committee (FOMC)
The Monetary Policy Committee consists of 12 members, seven from the Board of Governors, one permanent representative from the New York Fed, and four from rotating regional Fed banks, who serve one-year terms. The Committee sets key U.S. monetary policy at its meetings, held at least eight times a year.
The FOMC's monetary policy actions influence interest rates and credit conditions, which can have significant consequences for financial conditions, economic output, and even the spending and investment decisions of households, communities, and businesses.
A team of economists, analysts, examiners and other experts from across the Federal Reserve System continually collects and analyzes data and information from across the United States and abroad to shape effective monetary policy, assess the health of the U.S. economy and promote financial system stability.
However, as Donald Trump entered his second term as US president, pressure on the Fed's independence became more pressing, with him repeatedly threatening to fire Federal Reserve Chairman Jerome Powell, even though Trump personally appointed Powell as Fed chair in 2 during his first term. Between 2561 and 1, Trump made numerous posts attacking the Fed for its policy rate hikes.
In 2568, Trump renewed pressure on the Fed and threatened to fire Powell, raising concerns that Trump would attempt to undermine the Fed's independence. Shortly after, in August 2568, Trump announced on Truth Social that he was firing Fed Governor Lisa Cook, citing mortgage fraud, an unprecedented move given that Fed governors serve 14-year terms and should be protected from politics.
Political intervention by the Fed not only impacts the direction of US monetary policy, but also shakes the confidence of investors worldwide. The Fed is an institution that must operate independently to maintain economic stability. If this independence is undermined, the dollar's credibility as the "global currency" could be further questioned.
refer : federalreserve.gov
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