Banks often sets the rate of interest overnight according to their wishes and conditions. This is referred to as Federal funds rates or Federal Reserve (FR) rates or FED. This rate is applied to the customers who take money from banks in the shape of loans.

FED Functions

1. The main objective of the FED’s is to control inflation as it is most dangerous thing in the world and no country is safe from it. Recession usually followed by the inflation which is also the target of FED’s.

2. Depositors are also the key member of the banking sector and it is also the responsibility of FED’s to look after their interests.

3. Checking the financial markets and identify their problems is another important function of the FED’s.

4. This is also the place where all other banks and government money is kept. In other words it acts as a Central Bank. Here not even the Banks from within the country but also other foreign banks keep their money.

The main purpose of the Federal Reserve System is to manage inflation and act as the Central Bank for nation and other banks. This ensures the distribution of money is decentralized which helps in stopping the inflation. Adjustment of loan rates as per requirement is another important task of the FED’s. It acts as a doctor for economy of any nation.

FED Importance

The Federal Reserve has many crucial powers in terms of policy making and matters concerning the World Bank. It also acts as supervisor and regulator for most of the matters regarding money. Because of its various types of funding, it can be regarded as the most powerful economic institution within the country.

In United States, the congress has all the monetary powers, these powers are given to them by the institution. It was the congress who made the Federal Reserves. It is their responsibility to educated members of congress about Federal Reserves.

In some circumstances it is the fiscal policy that dominates the monetary policy which in tern determines the inflation. Federal Reserve influence the interest rates and mainly responsible for the stability of the financial system of the country. It is hugely important how Federal Reserve is run and its structure as its policies can make or break the country. The decision made by it directly affects the people and their livelihood. People who are responsible in the decision making should be accountable for every decision they make in order to safeguard the interest of people.