Glossary · Money and central banks
Federal Reserve
The Federal Reserve, or the Fed, is the central bank of the United States: it sets the key interest rate and watches over the dollar and the banks.
Also called: the Fed, Federal Reserve System, FOMC, US central bank
Effective federal funds rate, November 9, 2026
Total assets, November 4, 2026
PCE prices, 12 months to Sep 2026. Goal: 2%.
In plain words
Every dollar bill in your wallet says “Federal Reserve Note” at the top. The Federal Reserve, or simply the Fed, is the central bank of the United States: the bank of the banks and of the US government, and the one that decides how expensive it is to borrow dollars.
Congress gave it two jobs, often called the dual mandate: as many jobs as the economy can sustain, and stable prices. Since 2012 the Fed has defined stable prices as inflation of 2% a year, measured by the PCE price index. In the 12 months to September 2026 that index rose 3.6%.
Its main lever is the federal funds rate, 3.88% on November 9, 2026. Twelve people vote on it at the Federal Open Market Committee, the FOMC, which meets eight times a year. Its decisions move markets around the world within seconds.
Example
Counting the votes at a Fed meeting
- 7 members of the Board of Governors in Washington, appointed by the President and confirmed by the Senate for 14-year terms.
- + 1: the president of the Federal Reserve Bank of New York, who always votes.
- + 4 of the other 11 Reserve Bank presidents, who take turns year by year.
- = 12 votes. All 19 sit at the table and speak; the decision, a new target range for the federal funds rate, is published at 2 p.m. Eastern time on the last day of the meeting.
A majority of 7 votes is enough to change what Americans pay on trillions of dollars of loans.
One level deeper
The Fed was created by the Federal Reserve Act of December 1913, after a string of bank panics, the worst in 1907, when there was no one to lend to banks in trouble. It is an unusual mix: a public Board of Governors in Washington and 12 regional Federal Reserve Banks, from Boston to San Francisco. It earns its income mostly from interest on the bonds it owns, pays its own costs, and in most years hands what is left to the Treasury.
Besides the key rate, the Fed can buy and sell huge amounts of bonds. It bought trillions of dollars of them after 2008 and in 2020 (quantitative easing), so its balance sheet grew from $910B in mid-2008 to a peak of $8.97T in April 2022. It held $6.75T on November 4, 2026.
It also supervises the biggest banks, runs the payment systems that move money between banks, and lends to banks through its discount window. In 2008 and 2020 it lent far beyond banks, to money market funds, companies and cities, to stop panics from spreading.
The Fed’s two goals since 1960: prices and jobs
Inflation by the Fed’s favorite measure and the unemployment rate, month by month. The goals often pull in opposite directions: squeezing out the inflation of the 1970s took interest rates high enough to help bring on two recessions in the early 1980s.
Latest: inflation 3.6% (Sep 2026), unemployment 4.1% (Oct 2026).
The numbers behind the chart
| Date | Inflation (PCE prices, 12 months) | Unemployment rate |
|---|---|---|
| Jan 1960 | 1.7% | 5.2% |
| Dec 1960 | 1.5% | 6.6% |
| Dec 1970 | 4.6% | 6.1% |
| Dec 1980 | 10.6% | 7.2% |
| Dec 1990 | 4.9% | 6.3% |
| Dec 2000 | 2.5% | 3.9% |
| Dec 2010 | 1.5% | 9.3% |
| Dec 2020 | 1.3% | 6.7% |
| Dec 2022 | 5.6% | 3.5% |
| Dec 2023 | 2.9% | 3.8% |
| Dec 2024 | 2.6% | 4.1% |
| Dec 2025 | 2.8% | 4.4% |
| Sep 2026 | 3.6% | 4.2% |
Why it matters
The Fed’s rate decisions ripple through the cost of mortgages, car loans and credit cards in the US, and through markets everywhere, because so much of the world borrows in dollars.
It is the US economy’s firefighter: in 2008 and 2020 it cut rates to near zero and lent trillions of dollars to stop financial panics.
Its inflation goal decides how fast the dollars in your pocket lose value: 2% a year halves their purchasing power in about 35 years.
A common mistake
Myth: The Fed is owned by private bankers and makes huge profits for them.
In fact: Member banks must buy stock in their regional Reserve Bank, but it is not like owning a company: the stock cannot be sold, gives no control, and its dividend is capped by law (6% a year, less for big banks). Rates are set by the FOMC, whose governors are appointed by the President and confirmed by the Senate, and in most years nearly all of the Fed’s profit goes to the US Treasury.
Questions people ask
Who controls the Federal Reserve?
Congress sets its goals and can change its law. The seven governors are appointed by the President and confirmed by the Senate, and the chair serves four-year terms. Day to day the Fed decides on its own: its rate decisions do not need the approval of the President or Congress.
How often does the Fed change interest rates?
The FOMC meets eight times a year, roughly every six weeks, and can act between meetings in an emergency, as it did in March 2020. The effective federal funds rate was 3.88% on November 9, 2026, about the same as a year earlier (3.87%).
Does the Fed print money?
Paper dollars are printed by the Treasury’s Bureau of Engraving and Printing; the Fed orders them and puts them into circulation through banks. The Fed does create money electronically: when it buys bonds, it pays with new bank reserves. That is what people usually mean by money printing.
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About the numbers
- The numbers on this page are recalculated from the data every night; the sources are listed at the end of the page.
- US recessions (NBER business cycle dates): National Bureau of Economic Research (NBER), Business Cycle Dating Committee: US Business Cycle Expansions and Contractions.
- Federal Reserve: total assets: Board of Governors of the Federal Reserve System, H.4.1 Factors Affecting Reserve Balances, series WALCL; retrieved from FRED, Federal Reserve Bank of St. Louis.
- Effective federal funds rate: Board of Governors of the Federal Reserve System, H.15 Selected Interest Rates, series H15/H15/RIFSPFF_N.D (Federal funds effective rate), Data Download Program. The EFFR is subject to the Terms of Use posted at newyorkfed.org. The New York Fed is not responsible for publication of the EFFR by BigCapital, does not sanction or endorse any particular republication, and has no liability for your use.
- Gross domestic product (current dollars): U.S. Bureau of Economic Analysis, National Income and Product Accounts, Table 1.1.5, series GDP; retrieved from FRED, Federal Reserve Bank of St. Louis.
- Personal consumption expenditures: chain-type price index: U.S. Bureau of Economic Analysis, National Income and Product Accounts, Table 2.8.4, series PCEPI; retrieved from FRED, Federal Reserve Bank of St. Louis.
- Unemployment rate: U.S. Bureau of Labor Statistics, Current Population Survey (household survey), series UNRATE; retrieved from FRED, Federal Reserve Bank of St. Louis.
- This page explains a term. It is not investment advice.