In any case, the Fed is more Interestingly, other countries have taken steps in recent years independent than other parts to increase the political independence of their central banks. of the government. MORNING NEWS C CENTRAL BANK INDEPENDENCE INCREASED IN MEXICO UNITED STATES. PACIFIC NEWS CENTRAL BANK OF JAPAN SYSTEM . GETS MORE INDEPENDENCE FEDERAL AL RESERVES That's because independence helps a central bank focus on long-term economic problems. Indeed, research shows that countries with more central bank independence tend to be more successful in controlling inflation than other countries. INFLATION CENTRAL BANK INDEPENDENCE In addition to the Board of Governors, This map shows the location of the Reserve Banks and the district the Fed consists of 12 Federal Reserve that each one serves. As shown on the map, the Reserve Banks are Banks spread around the country. The concentrated in the eastern half of the United States. That's because Reserve Banks provide financial services when the Fed was created, U.S. population, business and financial for the U.S. government, supervise banks activities were far more concentrated in the east than they are now. in their districts, and provide banks with services, such as the provision and storage of cash, loans, and check processing. Minneapolis. Cleveland Chicago Boston San Francisco Kansas City . New York St. Louis Philadelphia Board of Governors Dallas . Atlanta Richmond U.S. Virgin Islands Puerto RicoBoth the Board of Governors and the Reserve Banks play a "a.\" rnone roleinthemonetarypolicyprocess.TheBoardofGovernors M35 33,333.33\" \"*5 m mmts- Federal Open Committee trout. ----:=: which meets in Washington. D.C.. Each Reserve Bank sets its primary and secondary credit rates eight times a year. every two weeks. subiect to the approval of the Board of . . Governors. {Because the United States has a national credit market. the discount rate. and now the primal? and secondary credit rates have. for ma decades. been uni orm throughout the Fedelgl Reserve 5 em.) The meetings are attended by the There are several reasons why the g'ecsident at the New tbrk Fed is a members of the Board at Governors permanent voting member of the F . One is that the New Writ Fed and the presidents of all i2 Reserve conducts all the open market operations for the Federal Reserve System. Bantu. there are only 12 voting members. however the seven governors and five of the Reserve Bank presidents. . W Wf'rvyynvww The president of the Federal Reserve Bank a! Newt'orlt is alwaysavotingrnember.andthe presidents of the other Reserve Banks rotate one- year terms as voting members. Another law enforced by the Fed is the Fair Credit and Charge Card Disciosure Act. which says that applications for credit cards must teil you whether have to pay an annual fee for the car and what interest rate you have to pay on the balance in your account. To get this credit card. you have to pay a $20 fee each year. On the other hand. the interest rate on this card is lower than what some of the other cards charge. The Board of Governors consists at seven members, appointed by the us. president and confirmed by the U.S. Senate. Governors are appointed to H-year terms. We've looked at man of the activities that the edera! Reserve performs. Let's look now at the different parts oi the Federal Reserve 5 tern and what each part . The System is headed by the Board of Governors. which is in Washington. 0.12. These terms are much longer than those of the president. " " senators. or members of the House oi Representatives. Also. the 14-year terms are staggered. That means they don't all expire at the same time. One term expires every two ars. The staggered 14-year terms reduce the inuence at itics on the Fed. It all the Fed's gov complete their terms. l'll be able to appoint only two governors in my founyear term. Another factor that The Fed is financially self-sufficient. Not only is the Fed financially promotes the Fed's political Its income comes predominantly self-sufficient, but it actually takes independence is that the from interest it receives on its holdings in much more income each year Fed does not have to of U.S. government securities. than it spends. The Fed returns to rely on appropriations the U.S. Treasury the excess of what from Congress. it takes in over what it spends. US GOVERNMENT PAY 10 Here's my latest interest payment on the government bonds you own. FED FED Of course, the Fed's Also, it was Congress that created For example, in 1980, Congress independence is far from the Fed. The U.S. Constitution gives passed a law saying that all banks total. By law, the chairman Congress the power to coin and in the United States have to meet of the Federal Reserve has regulate the value of money, and the Fed's reserve requirements. to testify before Congress at Congress has decided to delegate Until then, only banks that least twice a year regarding that authority to the Fed. At times, belonged to the Federal Reserve the Fed's monetary policy. Congress has changed the Fed's powers. System had to meet them. UNITED STATES If all banks have to meet the Fed's reserve CONSTITUTION requirements, the Fed will be able to do a better job of influencing money and credit conditions. And that should Why are the help the economy grow interest rates so high? without inflation