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How the Fed Works


Checks and Balances

The structure of the Federal Reserve was carefully laid out to incorporate a strong system of checks and balances. Its decentralized status and broad range of participants eliminates the chances of any one group having too much control.

Each of the Fed's tools is under the authority of a different group within the system. For example, the Board of Governors has the authority to change bank reserve requirements; the boards of directors for the individual Reserve Banks can initiate changes to the discount rate (which then has to be approved by the Board of Governors); and the open market operations (the most important tool) is controlled by the FOMC, which represents both groups.

These checks and balances, along with the overall structure of the Federal Reserve, make sure that partisan interests don't have too much control and ensure that the Fed's decisions represent the broad interests and needs of the entire United States.

For more information on the Federal Reserve System and related topics, check out the links on the next page.

 


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