Federal Reserve System · Fed
The central bank of the United States — sets the world's most consequential interest rate, supervises the largest US banks, and acts as lender of last resort to the dollar system.
Mandate
Established by the Federal Reserve Act, 1913. Statutory dual mandate: maximum employment and stable prices (interpreted operationally as 2% PCE inflation). Twelve regional Reserve Banks plus the Board of Governors in Washington. Run by a Chair (currently Jerome Powell) appointed by the President with Senate confirmation; the Federal Open Market Committee (FOMC) sets the federal funds rate target.
How it works
FOMC meets eight times a year. Sets the federal funds rate target range, conducts open market operations (Treasuries, MBS), runs the discount window, and pays interest on reserve balances (IORB). Operates the Standing Repo Facility and emergency liquidity programs (PPPLF, MMLF, etc., in crises). Supervises bank holding companies and runs the annual stress tests (DFAST, CCAR).
Why it matters
The fed funds rate anchors the global cost of US dollars. When the Fed hikes, EM currencies typically depreciate (capital flows to higher US yields), EM borrowing costs rise, and EM central banks face the choice of matching the hike or defending FX reserves. The 2022-23 hiking cycle (0% → 5.5%) drove the KES from ~110/USD to ~165/USD before stabilising. Kenya's Eurobond pricing and IMF program design both bake in Fed forward guidance.
What to watch
FOMC statement (every six weeks), Summary of Economic Projections (the 'dot plot') released quarterly, Chair's press conference, FOMC minutes (three weeks after each meeting), Beige Book, monthly CPI / PPI / payrolls data that drive Fed decisions.
More from Major global central banks
- European Central Bank · ECB
The central bank of the euro area — sets monetary policy for 20 EU countries sharing the euro, the world's second-largest reserve currency.
- Bank of England · BoE
The UK central bank — the oldest continuous central bank in the world (1694), responsible for monetary policy, financial stability, and bank supervision in Britain.
- Bank of Japan · BoJ
The Japanese central bank — the longest-running experiment in unconventional monetary policy, having held rates near zero for most of 25 years until 2024.
- People's Bank of China · PBoC
The central bank of China — controls the world's second-largest economy's money supply, manages the renminbi, and is the most opaque major central bank.