The Federal Reserve Board
One of the primary functions of the Fed is to stabilize the economy. There is some debate about when the Fed should act as a stabilizing force and when it should act as an energizer or cooling factor. However, generally the Fed tries to maintain a stable growth rate, low inflation, and optimize the unemployment rate.
Controlling the money supply and the interest rate regulates these factors. By lowering the interest rate, money is easier to borrow and the economy picks up steam. However, this may also create inflation. By raising interest rates, the money supply contracts and inflation falls. At a recent meeting, the Fed left the interest rate alone saying they were more concerned about inflation than a weak economy (Fed Leaves). However, with falling inflation there is a risk of rising unemployment. The Fed carefully balances these variables to keep the economy on an even keel.
The Fed can also increase the money supply by increasing the reserves held by banks that loans are drawn against. This will make more money available. By reducing the reserves, it tightens the money supply. They also regulate the currency supply that has a minimal effect on the economy.
The Federal Reserve Board is headed by the Federal Reserve Chairman, currently Ben Bernanke. The Chairman has considerable influence on the direction of the board and the economy. Their individual philosophies on inflation and the best ways to control the economy can have a great effect on the working class. ...