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To: greenspirit who wrote (73845)	2/3/2000 3:05:00 PM
From: Ilaine	Read Replies (2) \| Respond to of 108807

The Federal Reserve itself states that the actions of the Federal Reserve influence the money supply, the availability of credit, interest rates, the entire financial structure of the nation, the domestic economy, and the international economy as well. rich.frb.org >>The Federal Reserve, through its ability to vary both the total volume of reserves and the required ratio of reserves to deposit liabilities, influences banks' decisions with respect to their assets and deposits. A major responsibility of the Federal Reserve System is to provide the total amount of reserves consistent with the monetary needs of the economy at reasonably stable prices. Changes in the volume of reserves influence the money supply (cash plus certain types of deposits), the availability of credit, interest rates, and as a result, the volume of spending. Depository institutions feel the impact of changes initially, but the effects spread quickly to the entire financial structure of the nation, the domestic economy, and often to the international economy as well.<< wcsu.ctstateu.edu >>The Board of Governors and the Reserve Banks share responsibility for monetary policy, actions to influence the availability and cost of money and credit. Their primary monetary policy tool is open market operations. Through the buying and selling of U.S. government securities, the Fed influences bank reserves. A purchase of government securities by the Fed adds reserves to the commercial banking system, enabling banks to expand their lending and investing. Conversely, the sale of securities by the Federal Reserve withdraws reserves from the banking system. Open market operations are the responsibility of the Federal Open Market Committee (FOMC). It is composed of the seven members of the Board of Governors and five of the Reserve Bank presidents. The president of the Federal Reserve Bank of New York serves on a continuous basis; the presidents of the other Reserve Banks serve on a rotating basis. The FOMC, established by Congress in 1935, is required to meet in Washington, D.C., at least four times a year. Typically, it meets once every five to eight weeks. The Board of Governors and the Reserve Banks also share responsibility for setting the discount rate--another important monetary policy tool. It is the rate financial institutions pay to borrow from the Fed for temporary, emergency or seasonal purposes. By raising or lowering the discount rate, the Fed influences the cost and availability of bank reserves. The discount rate is set by the directors of each Reserve Bank every two weeks, subject to determination and review by the Board of Governors.<< >>OPEN MARKET OPERATIONS: Purchases and sales of government and certain other securities in the open market by the New York Federal Reserve Bank as directed by the FOMC in order to influence the volume of money and credit in the economy. Purchases inject reserves into the depository system and foster expansion in money and credit; sales have the opposite effect. Open market operations are the Federal Reserve's most important and most flexible monetary policy tool. They are used to promote either higher or lower growth in money and credit and to offset undesired changes in the reserve positions of depository institutions stemming from movements in currency, float, Treasury deposits, and other factors. <<