What Is the Federal Reserve?
The Federal Reserve, or the Fed, is the central bank of the United States. It sets key interest rates and tries to keep prices stable and jobs plentiful.
What the Fed does
- Sets the federal funds rate, the base for many other rates.
- Aims for low, steady inflation, around 2% a year.
- Aims for maximum employment.
- Oversees banks and steps in during financial crises.
How the Fed fights inflation
When prices rise too fast, the Fed raises rates. Borrowing gets more expensive, spending slows, and price rises cool. When the economy is weak, it cuts rates to encourage borrowing and spending.
Why the stock market watches the Fed
Rate changes affect company profits, borrowing costs and how investors value stocks. The Fed meets about eight times a year, and markets often move sharply on its decisions and on the words of its chair.
Other tools
In big crises, the Fed can also buy bonds to push long-term rates down. That is called quantitative easing.
See it in real companies
Open a company to see what it sells and how it makes money.