Federal Reserve System

After the financial crisis of 1907, the United States was the only major financial power without a central bank. During the crisis J. P. MorganJ. P. MorganJ. P. Morgan (John Pierpont Morgan, 1837–1913) was an American financier and art collector who headed the banking house J.P. Morgan & Co., organized the reorganization of major railroads and large industrial consolidations, and played a role in American fiscal and financial crises.Open the full entry organized private investments and lines of credit to stabilize the banking system, as he had done in a crisis in 1895.⁠[1]

On May 30, 1908, Congress passed the Aldrich-Vreeland Act, which authorized emergency currency and created an 18-member National Monetary Commission chaired by Senator Nelson Aldrich. Over about three years the commission visited European capitals and held hearings in the United States.⁠[1]

In November 1910 the investment banker Paul WarburgPaul WarburgPaul Warburg (1868–1932) was a German-born American banker who advocated a U.S. central bank in the early 20th century. He served on the first Federal Reserve Board from 1914 to 1918, as vice governor from 1916 to 1918.Open the full entry, the Treasury official Abram Piatt Andrew and others met secretly on Jekyll Island, Georgia, to draft what became the Aldrich Plan; participants used first names only and described the trip as a duck hunt.⁠[1]

Aldrich unveiled the plan in January 1911, and after a year of revision it went to Congress in 1912. It proposed a National Reserve Association with a 46-member board, six of them appointed by the government, which would hold no stake in the association. Committees in both chambers criticized the plan for giving too little control to the government and too much power to bankers.⁠[1]

Opposition to the Aldrich Plan was a plank of the Democratic platform. Woodrow WilsonWoodrow WilsonWoodrow Wilson (1856–1924) was an American scholar and politician who served as president of Princeton University and governor of New Jersey and was the 28th president of the United States from 1913 to 1921, leading the country through World War I and proposing the League of Nations.Open the full entry won the 1912 presidential election, and Democrats controlled both houses of Congress. The House Banking and Currency Committee assigned a subcommittee led by Representative Carter Glass, who brought in Henry Parker Willis, a professor at Washington and Lee University. The Glass bill called for regional banks rather than a single central institution; at Wilson’s insistence a Federal Reserve Board made up entirely of presidential appointees or ex officio members was added, and Wilson also created the Federal Advisory Council of twelve bankers elected by the regional banks, which would meet occasionally with the Board.⁠[1]

In the Senate, Senator Robert L. Owen of Oklahoma offered a bill that limited the Reserve Banks to twelve and lowered the capital subscription required of member banks. The conference committee set the number of Reserve Banks at between eight and twelve and staggered and lengthened governors’ terms to ten years so that no president could appoint all of them in two terms. Wilson signed the Federal Reserve Act on December 23, 1913.⁠[1]

The Federal Reserve Board created by the Act consisted of two ex officio members, the secretary of the treasury and the comptroller of the currency, and five presidential appointees. The Act also created Federal Reserve notes and required member banks to hold reserve balances at their Reserve Banks; national banks had to join the System, and state banks that met its criteria could join.⁠[2]

Until the reorganization of 1935, the secretary of the treasury served as chairman of the Federal Reserve Board; the first was W. G. McAdoo, from December 23, 1913, to December 15, 1918.⁠[3]

A Reserve Bank Organization Committee made up of the secretary of the treasury, the secretary of agriculture and the comptroller of the currency was charged with setting the number and boundaries of the districts and choosing the Reserve Bank cities. It surveyed commercial banks, evaluated proposals from 37 cities and held public hearings in 18 cities, and on April 2, 1914, announced twelve districts, their boundaries and their Reserve Bank cities.⁠[2]

Charles S. Hamlin took the oath of office as a member of the Federal Reserve Board on August 10, 1914, and served as its first Governor in a term that ran to August 9, 1916.⁠[3]

World War I broke out in Europe in August 1914, setting off a brief panic and an outflow of gold. The Federal Reserve Banks opened for business on November 16, 1914.⁠[2]

After the United States entered the war in 1917, the Federal Reserve System helped sell government securities and Liberty bonds, and the Reserve Banks offered preferential discount rates on loans secured by government securities. In 1920 it sharply raised the discount rate in response to a modest gold outflow and rising inflation; a short recession followed, after which the economy grew steadily with low inflation through the decade.⁠[2]

The war disrupted European trade credit, and American banks financed a growing share of world trade. By the mid-1920s the dollar had become the leading reserve currency, and by the late 1920s more than half of U.S. imports and exports were financed by dollar-denominated bankers’ acceptances.⁠[2]

The founders had not envisioned monetary policy in the modern sense. In the early 1920s officials discovered that open-market operations in government securities affected market rates and credit conditions. In 1923 the Open Market Investment Committee was established with Benjamin Strong, Governor of the Federal Reserve Bank of New YorkFederal Reserve Bank of New YorkThe Federal Reserve Bank of New York is one of the twelve regional Reserve Banks of the Federal Reserve System and serves the Second District. The largest Reserve Bank by assets and volume of activity, it conducts open market operations for the Federal Open Market Committee and stores monetary gold for official institutions.Open the full entry, as chair; the System then used open-market operations to pursue broad economic goals and made substantial purchases in 1924 and 1927. Milton FriedmanMilton FriedmanMilton Friedman (1912–2006) was an American economist and the leading advocate of monetarism who taught for three decades at the University of Chicago, later became a senior research fellow at the Hoover Institution, and received the 1976 Nobel Prize in Economic Sciences.Open the full entry and Anna Schwartz credit Strong with developing the System’s first macroeconomic stabilization policy.⁠[2]

In 1928 attention shifted to the booming stock market, and the System sold securities and raised discount rates; in early 1929 the Board issued guidelines meant to bar banks that made stock market loans from borrowing at the Reserve Banks. David C. Wheelock’s essay notes that internal divisions over speculation and open-market purchases hampered the System’s response to the Great Depression.⁠[2]

Marriner EcclesMarriner EcclesMarriner Eccles (Marriner S. Eccles, 1890–1977) was a Utah banker who headed the Federal Reserve Board from 1934, served as Chairman of the Board of Governors of the Federal Reserve System from 1936 to 1948, and helped shape the Banking Act of 1935.Open the full entry moved from the Treasury to the Federal Reserve Board in November 1934 and supervised the staff that drafted the initial legislation. Franklin D. RooseveltFranklin D. RooseveltFranklin D. Roosevelt (1882–1945) was an American politician who served as the 32nd president of the United States from 1933 to 1945, the only president elected four times; he led the country through the Great Depression and World War II and greatly expanded the federal government’s role through the New Deal.Open the full entry signed the Banking Act of 1935 on August 23, 1935. The act made the seven governors, the president of the Federal Reserve Bank of New York and four other Reserve Bank presidents serving in rotation the voting members of the Federal Open Market Committee, and centralized control of open market operations in that committee, which carried out transactions through the New York Fed’s trading facilities.⁠[4]

The act renamed the “Federal Reserve Board” the “Board of Governors of the Federal Reserve System,” retitled its head chairman and its members governors, and increased the presidentially appointed members from six to seven with 14-year terms, the President designating a chairman and vice chairman for four-year terms. The ex officio members, the secretary of the treasury and the comptroller of the currency, served only until February 1, 1936.⁠[3]

In April 1942, at the Treasury’s request, the Federal Reserve System committed to pegging short-term Treasury bill rates at 3/8 percent and implicitly capped long-term bond rates at 2.5 percent. To maintain the peg it had to keep buying government securities, giving up control of its portfolio and of the money stock.⁠[5]

Consumer price inflation was 17.6 percent from June 1946 to June 1947 and 9.5 percent over the following year. The United States entered the Korean War in June 1950, and by February 1951 annualized consumer price inflation had reached 21 percent.⁠[5]

On January 31, 1951, Harry S. TrumanHarry S. TrumanHarry S. Truman (1884–1972) was an American politician who served as a U.S. senator from Missouri and as vice president in 1945, succeeding Franklin D. Roosevelt on his death that year and serving as the 33rd president of the United States from 1945 to 1953, a period spanning the end of World War II and the early Cold War.Open the full entry met the Federal Open Market Committee at the White House; afterward Eccles released the committee’s account of the meeting, which contradicted Truman’s statement that the committee had pledged to support the peg. The System then informed the Treasury that as of February 19, 1951, it would no longer maintain the existing situation.⁠[5]

On March 4, 1951, the Treasury and the Federal Reserve System issued a joint statement that they had reached full accord on debt management and monetary policy, aiming to minimize monetization of the public debt. Assistant Secretary of the Treasury William McChesney Martin Jr. negotiated the compromise while Treasury Secretary John W. Snyder was in the hospital: the System would support the price of five-year notes for a short time, after which the bond market would be on its own. Jessie Romero’s essay judges that the accord began the development of a free market in government securities and established central bank independence from fiscal concerns.⁠[5]

Jimmy CarterJimmy CarterJimmy Carter (1924–2024) was an American politician and Democrat who served as the 39th president of the United States from 1977 to 1981. His administration brokered the Camp David Accords between Egypt and Israel, signed the Panama Canal treaties and established relations with the People’s Republic of China, but he lost his reelection bid amid the energy crisis, inflation and the Iran hostage crisis; after leaving office he founded The Carter Center to work on mediation, election observation and disease control, and received the Nobel Peace Prize in 2002.Open the full entry signed the Federal Reserve Reform Act on November 16, 1977. It directed the Federal Reserve System to pursue “maximum employment, stable prices, and moderate long-term interest rates,” the first two of which are commonly called the dual mandate, and required Senate confirmation of the Board’s chair and vice chair, who serve renewable four-year terms.⁠[6]

In January 1979 prices measured by the personal consumption expenditures index were up 7.7 percent from a year earlier, and the dollar had lost 12 percent of its value against major foreign currencies since late 1976. When Paul Volcker appeared at his Senate Banking Committee confirmation hearing in July 1979, inflation was running at about 9 percent a year, and he made fighting it his top priority.⁠[7]

On October 6, 1979, after an unscheduled FOMC meeting, Volcker held a press conference announcing that the committee would shift its focus from targeting the day-to-day federal funds rate to managing the volume of bank reserves. The federal funds rate reached a record 20 percent in late 1980 and inflation peaked at 11.6 percent in March 1980; the economy fell into a severe recession, with unemployment peaking at 10.8 percent in late 1982. Inflation fell to 6.1 percent in early 1982 and to 3.7 percent the following year.⁠[7]

U.S. home prices more than doubled between 1998 and 2006, and mortgage debt rose from 61 percent to 97 percent of GDP. Pressure emerged in the asset-backed commercial paper market in August 2007, and the economy entered recession in December 2007. In spring 2008 JPMorgan Chase & Co.JPMorgan Chase & Co.JPMorgan Chase & Co. is a financial holding company headquartered in New York that operates investment banking, consumer and small business financial services, commercial banking, financial transaction processing and asset management under its J.P. Morgan and Chase brands; its roots trace back to the Manhattan Company of 1799.Open the full entry acquired Bear Stearns with assistance from the Federal Reserve System; in September 2008 Lehman Brothers filed for bankruptcy, and the next day the System provided support to AIG.⁠[8]

In October 2008 the Federal Reserve System gained authority to pay interest on excess reserves. The federal funds rate target fell from 4.5 percent at the end of 2007 to 2 percent in early September 2008 and to a range of 0 to 0.25 percent by the end of 2008; in November 2008 the System began its first large-scale asset purchase program, buying mortgage-backed securities and longer-term Treasury securities. The recession lasted eighteen months and ended in June 2009; GDP fell 4.3 percent from peak to trough and unemployment rose from under 5 percent to 10 percent.⁠[8]

The Dodd-Frank Act of 2010 created the designation of systemically important financial institutions, the Orderly Liquidation Authority and “living wills” for large institutions. In December 2012 the FOMC tied its low-rate policy to an unemployment threshold of 6.5 percent, provided inflation stayed no more than half a percentage point above its 2 percent goal.⁠[8]

On March 15, 2020, the FOMC lowered the target range for the federal funds rate to 0 to 1/4 percent and decided to increase its holdings of Treasury securities by at least $500 billion and of agency mortgage-backed securities by at least $200 billion over the coming months. Measures announced the same day also covered the discount window, intraday credit, bank capital and liquidity buffers, reserve requirements and U.S. dollar liquidity swap lines with other central banks.⁠[9]

Donald Trump nominated Kevin WarshKevin WarshKevin Warsh (Kevin M. Warsh) is an American economic policy official who has served as Chairman of the Board of Governors of the Federal Reserve System and Chairman of the Federal Open Market Committee since May 22, 2026. Early in his career he worked in mergers and acquisitions at Morgan Stanley; from 2002 to 2006 he was executive secretary of the White House National Economic Council, and from 2006 to 2011 he was a Federal Reserve governor through the 2008 financial crisis. After leaving the Board he was a visiting fellow at Stanford University’s Hoover Institution and wrote an independent review of monetary policy transparency for the Bank of England.Open the full entry on March 4, 2026; the Senate confirmed him as a Board member on May 12 and as chairman on May 13. Warsh took the oath of office as chairman and as a member of the Board on May 22, 2026, and the FOMC unanimously selected him as its chairman the same day. His term as chairman ends May 21, 2030, and his term as a governor ends January 31, 2040.⁠[10]

Warsh had previously served on the Board from 2006 to 2011, and from 2002 to 2006 was special assistant to the president for economic policy and executive secretary of the National Economic Council.⁠[11]

As of November 2026, the Board’s website lists seven members: Chairman Kevin Warsh, Vice Chair Philip N. Jefferson, Vice Chair for Supervision Michelle W. Bowman, and Michael S. Barr, Lisa D. CookLisa Cook (Federal Reserve Governor)Lisa D. Cook is an American economist who took office as a member of the Board of Governors of the Federal Reserve System in May 2022, the first Black woman to hold the position; she was previously a longtime professor of economics and international relations at Michigan State University, researching economic growth, innovation, and economic history. Beginning in August 2025, President Donald Trump sought to remove her over allegations about her mortgage filings; she denied the allegations and sued, and in June 2026 the U.S. Supreme Court ruled that she may remain in office while the litigation continues.Open the full entry, Jerome H. Powell and Christopher J. Waller. Bowman has been Vice Chair for Supervision since June 9, 2025.⁠[12][3]

The Board of Governors is the governing body of the Federal Reserve System and a federal agency that reports to and is directly accountable to Congress. Its seven governors are nominated by the President and confirmed by the Senate for staggered 14-year terms, and the Chair and Vice Chair serve four-year terms in those posts. The Board oversees the twelve Reserve Banks and shares supervisory responsibility with them.⁠[13]

The twelve Reserve Banks, with 24 branches, are the System’s operating arms; each serves a geographic district, supervising banks, enforcing consumer and fair lending laws, lending to depository institutions, distributing currency, operating payment systems and serving as the government’s bank.⁠[13]

The FOMC has twelve voting members and meets at least eight times a year to set monetary policy; the president of the Federal Reserve Bank of New York is a permanent member and its vice chair, and the other seven Reserve Bank presidents take part in deliberations without voting. The Chair of the Board also chairs the committee.⁠[13][14]

Congress has assigned the Federal Reserve System the goals of maximum employment and price stability. Its five stated functions are monetary policy, financial stability, supervision and regulation, payment systems, and consumer protection and community development.⁠[13]

Chairs of the Board since 1936 have been Marriner Eccles (February 1, 1936–January 31, 1948), Thomas B. McCabe (April 15, 1948–March 31, 1951), William McChesney Martin Jr. (April 2, 1951–January 31, 1970), Arthur F. Burns (February 1, 1970–January 31, 1978), G. William Miller (March 8, 1978–August 6, 1979), Paul Volcker (August 6, 1979–August 11, 1987), Alan GreenspanAlan GreenspanAlan Greenspan (1926–2026) was an American economist who served as the 13th Chairman of the Board of Governors of the Federal Reserve System from 1987 to 2006, after earlier serving as chairman of the President’s Council of Economic Advisers.Open the full entry (August 11, 1987–January 31, 2006), Ben BernankeBen BernankeBen Bernanke (Ben S. Bernanke, born 1953) is an American economist who served as Chairman of the Board of Governors of the Federal Reserve System from 2006 to 2014, shared the 2022 Nobel Prize in Economic Sciences for research on banks and financial crises, and is a fellow at the Brookings Institution.Open the full entry (February 1, 2006–January 31, 2014), Janet L. Yellen (February 3, 2014–February 3, 2018) and Jerome H. Powell (February 5, 2018–May 22, 2026), followed by Kevin Warsh.⁠[3]

Federal Reserve System: Official website: https://www.federalreserve.gov/ (opens in a new window).⁠[13]

X: Public account: https://x.com/federalreserve (opens in a new window).⁠[11]

LinkedInLinkedInLinkedIn is a social networking platform for professionals. It was founded in 2002 by Reid Hoffman and others, launched in 2003, and listed on the New York Stock Exchange in 2011; after Microsoft acquired it for approximately $26.2 billion in 2016, it became a wholly owned Microsoft subsidiary. Its revenue comes from membership subscriptions, advertising, and recruitment solutions.Open the full entry: Public profile: https://www.linkedin.com/company/federal-reserve-board (opens in a new window).⁠[11]

YouTubeYouTubeYouTube is Google’s video-sharing and creator platform, founded in 2005 by Steve Chen, Chad Hurley, and Jawed Karim and acquired by Google in 2006. Built around video uploading, viewing, and creator earnings, the platform has developed Shorts, YouTube Music, Premium, YouTube TV, and products for children, and is headquartered in San Bruno, California, United States.Open the full entry: Public channel: https://www.youtube.com/federalreserve (opens in a new window).⁠[11]