Crisis after crisis managed by the Federal Reserve

The Federal Reserve, established in 1913, was created to bring order to a financial system that had been repeatedly plagued by crises. Its inception came after the crisis of 1907, which saw the New York Stock Exchange drop by 50% and led to widespread bankruptcies.

Over the years, the Federal Reserve (Fed) has evolved to become a key player in the global economy. Its role has expanded beyond the borders of the United States due to the American dollar's status as a reference currency internationally. This global influence is reflected in the Fed's annual meetings in Jackson Hole, Wyoming, where it discusses the global economy and international monetary policy.

The Fed is led by a president and a board of governors appointed by the President of the United States. However, the responsibility of setting monetary policy lies with the Federal Open Market Committee (FOMC), which includes representatives from the 12 regional banks, whose board members are appointed by private banks.

The Fed operates under a unique structure, born from a compromise between mistrust of government intervention and the need to moderate private enterprises. It is tasked with a dual mandate: acting as the government's banker and maintaining the stability of the financial system.

Throughout its history, the Fed has navigated numerous economic challenges. Notable figures like Alan Greenspan and Ben Bernanke have steered the Fed through significant crises, such as the stock market crash of 1987 and the 2008 subprime crisis, respectively.

Currently, the Fed is under the leadership of Jerome Powell, who has faced unprecedented criticism from former President Donald Trump. Despite this, Powell has managed to steer the Fed through the COVID-19 pandemic and a historic rise in inflation.

The Fed sets a target interest rate within a range, and the current administration believes this range is too high. In response to the deterioration of the labor market in the United States, Powell has opened the door to a possible near-term decrease in interest rates.

Central banks, including the Fed, have historically faced criticism for doing too much, too little, or contributing to recessions. However, the Fed's role in maintaining financial stability is undeniable, and its influence continues to shape the global economy.

Unlike the Bank of Canada, which sets a target interest rate eight times a year at 2.75%, the Fed's approach to monetary policy is less frequent and more flexible. This flexibility allows the Fed to respond quickly and effectively to changing economic conditions.

As the Fed continues to navigate the challenges of the modern economy, its role and influence are likely to remain significant. The current chair, Jerome Powell, may be remembered for his handling of these crises and potentially for standing up to former President Donald Trump.