58. What Traders Need to Know About The Structure of The Fed

http://www.informedtrades.com
A lesson on the structure of the Federal reserve for traders and investors in the stock, futures, and forex markets.

In our last lesson we finalized our discussion on the importance of interest rates and introduced the Federal Reserve. In today's lesson we're going to continue our discussion on the Federal Reserve by looking at the parts of the Fed which are relevant to us as traders so we can begin to understand how this one institution is able to create drastic moves in the markets.

The Federal Reserve has many responsibilities which include regulating banking activity, playing a major role in operating the nation's payments system, and maintaining the stability of the financial system. The role that is most important to us as traders and therefore the role in which we will concentrate on in our lessons, is its role in conducting the nation's monetary policy.

***As a side note here the Federal Reserve is also the Central Bank of the United States. I say this here because most countries have something which operates in much the same way as the Fed which is many times referred to in other countries as the Central Bank. While these institutions may be structured differently from the Fed, from a broad perspective many of the things you learn in our lessons on monetary policy will apply to any central bank.




While the Fed's objectives are set by law, its day to day activities are not subject to government approval. This is an important point to understand as it means that unlike Fiscal Policy, which must be approved by both Congress and the President, monetary policy can be enacted as the Fed pleases. This gives the Fed much more control over the economy at least in the short term, and is the reason why some people consider the chairman of the Federal Reserve to be more powerful than even the President.

There are many interesting details about The Fed and its structure that I encourage everyone to explore, however the primary components which move markets, and are therefore the ones that we will focus on, are:

1. The Board of Governors: Located in Washington DC the Board of Governors is at the top of The Fed's food chain. It is made up of 7 members who are appointed by the president and confirmed by the Senate. To help keep The Fed from being influenced by political factors, 5 of the Fed Governors are appointed to staggered 14 Year terms. The Chairman and the Vice Chairman are appointed to 4 year terms and can be reappointed should the President wish to have them.

2. The Regional Federal Reserve Banks: This is a network which includes the 12 regional Federal Reserve Banks, and 25 Branches. As most of you already know, different areas of the United States are comprised of different industries. As an example the New York area economy is influenced heavily by what is going on in financial services, while the San Francisco area economy is influenced heavily by what is happening in the technology sector. As this is the case, each of the regional banks are strategically located throughout the country so that the can stay abreast of current economic conditions in each area.

Category:

Howto & Style

Tags:

• howto
• trade
• trading
• economy
• fed
• federalreserve
• daytrade
• investing
• business
• forex
• futures
• stockmarket
• informedtrades

[fxclub]

Thanks David,

as clear, concise and useful as ever,

keep it up.

all the best

Dennis

[InformedTrades]

Thanks Dennis.  Am enjoying your videos as well. Best Regards, Dave

[Hallaran]

Excellent education, thanks for the information.

[InformedTrades]

your welcome, glad you liked it and thank you for the comment. Best Regards, Dave

[popeeka]

What type of trading do you practice?

[InformedTrades]

Hi Popeeka, Thank you for the comment. Primarily stocks and foreign exchange. Best Regards, Dave

[freedomfighterone]

Well, the criminal Fed is not maintaining the stability of the financial system. Their economic policies have destroyed the American economy. They are criminals and they need to be brought to justice.

[stevenstreets3]

@jumpoutatree Every argument on behalf of the Fed can be multiplied 50 times for the 50 state economy's. All economy is local or we have no economy at all.

I'll take the issues of FREE STATE banking over nationalized monopoly banking any day. The State banks are bound to fiscal reality in their risk taking by the stability of the TWO precious metal legal tender requirement. It was to cast off that restraint that the Fed was created of the banks, by the banks and for the banks. IT COSTs TOO MUCH

[stevenstreets3]

@jumpoutatree US Constitution Article One section 8 and 10 mandates a two precious metal legal tender system to keep the fractional reserve banking industry from corrupting the Federal government and then keeping the Nation in perpetual debt. Two Two 2 precious metal legal tenders to prevent any monopoly. The State Elected Governors oversee each state economy, NOT the unelected board of governors of the monopoly money. It is a monopoly! Each State must have its own "FED". A mighty FREE UNION

[jumpoutatree]

@YvonJrDenis Furthermore, you need to stop repeating this ancient myth that the Federal Reserve in any way "owns" the economy. Do we all not realize that each year the Fed rebates the government the interest it is owed? For the retards out there, that means that the US government does not owe the Fed interest year upon year. The Fed does not "own the monetary system". You're speaking gibberish.

[jumpoutatree]

@YvonJrDenis Nobody "owns" D.C. What does that even mean? Who "owns" Nebraska? The reason DC never became a state is that it's a tiny little city, and there's never been a really compelling reason to proclaim statehood. It's just fine how it is. Virginia might want it, Maryland might want it, but who's to say that DC residents want to become part of either of those two states? Your logic is really bizarre. DC is not a "country within a country".

[jumpoutatree]

@stevenstreets3 Do you know what the era of 'freebanking' refers to? Go look it up. It's exactly what you are talking about, and the result was chaos, panics, and cyclical depressions, which is why the majority of Americans lived in poverty until after WW1. The Federal Reserve is not perfect, but has performed remarkably well in maintaining a stable banking system that is the envy of governments around the world. You are completely brainwashed. Do you believe in Reptilian Illuminati, too?

[jumpoutatree]

@stevenstreets3 I repeat, you do not understand what you are reading. Do yourself a favor: go to your local university (or even community college, for that matter), find the nearest Government/Law Professor, and ask him to explain Article 1 Sections 8-10 to you. Don't simply repeat these paranoid conspiracy theories that generate from people who do not understand Constitutional law or the history of banking in America. Trust me, you'll sleep better at night.

[jumpoutatree]

@freedomfighterone I criticize people who repeat dusty old conspiracy theories as if no one's heard this tripe before. No one is 'raping my butt' in taxes, certainly not any of the people you mention. Gee, paranoid homophobic much? Stop getting your history from Alex Jones, you twat.