The Federal Reserve, the nation’s largest financial institution, is responsible for deciding the interest rate, discount and financial reserve commercial banks need to pay in order to lend money. The Federal Reserve also monitors and regulates financial firms to prevent customer exploitation and promote financial market stability (Rugman & Verbeke, 2017). This responsibility includes providing bank services and maintaining financial stability by controlling interest rates.
If the Federal Reserve asks commercial banks for higher interest rates, they will raise their discount rates. To prevent inflation, banks use discounts by decreasing the money supply. Additionally, the Government Reserve employs federal discounts to guarantee that commercial banks either decrease or raise interest rates (Rugman & Verbeke, 2017). Federal reserves might reduce the discount rate to help people get loans with low interest rates. This is done when there’s a shortage of money.
Federal Reserve is responsible for maintaining a stable and efficient system of payment. They also formulate, implement, and reinforce monetary policies, by making sure that financial institutions and commercial banks adhere to regulations (Weetman 2019, 2019). In addition, they supervise and control banking activities.
Society benefits from Federal Reserve’s monetary strategy, which promotes economy through avoiding excess money supply that could lead to inflation. Society has experienced how federal banks assist in reviving the economy during financial downturns (Rugman & Verbeke, 2017). Due to rising interest rates, bank regulations, discounts and availability, small-scale, capital-intensive investors are able to obtain cash for investments.
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