When I was a boy, I thought the “Federal Reserve Bank” was a mighty vault buried under Washington, full of gold coins guarded by men in uniforms. Later I learned it was neither federal, nor much of a reserve, nor a bank in the way you or I know a bank. It was more like a magician’s hat: call it whatever you like, and the trick still works. The name was chosen the way a snake oil salesman chooses a label — not to tell the truth, but to sell the bottle.
So what would be a better name? “United States Central Bank” would do, though it lacks the poetry of a good swindle. In the end, the Fed is a creature of compromise — half government, half banker’s club, and all mystery. Maybe the best name is the one it has, for it reminds us that words in finance are like dollar bills themselves: valuable only because enough people agree to pretend they are.
The Federal Reserve doesn’t actually print money the way people imagine, with presses rolling and cash spilling out. That job belongs to the Treasury, and even then, physical bills make up only a small slice of the total money supply. What the Fed really does is maintain a vast electronic ledger. It credits and debits the reserve accounts of commercial banks, creating new balances out of thin air when it wants to expand lending power, and withdrawing them when it wants to tighten the system. No gold is moving, no trucks of cash are rolling down the street. It’s all digital entries — a fiat currency system based on trust, law, and accounting rather than any physical backing. In practice, most money in the modern economy comes into existence this way: when banks lend out the credits they hold at the Fed, multiplying electronic dollars into the financial system.
The Fed is uneasy about Bitcoin for one simple reason: it’s a rival ledger. The Fed’s authority comes from the fact that it alone keeps the master book of credits and debits for the banking system. Bitcoin, by contrast, is a ledger that no one controls, written in code and copied across the globe. One ledger depends on trust in government and central bankers, the other on mathematics and consensus. That clash of ledgers is a story worth telling in its own right — but that, as they say, is a tale for another day.
Why is federal reserve bank called that even though it is not federal, not a reserve and not a bank
The name “Federal Reserve Bank” is more a product of politics and branding than literal description. Let’s break it down:
1. “Federal”
The Federal Reserve System was created by Congress in 1913, after the Panic of 1907 made it clear the U.S. needed a central bank. To gain political support, especially from those wary of too much centralized power, it was set up as a hybrid system:
- The Board of Governors in Washington, D.C. is a federal government agency.
- The 12 regional Federal Reserve Banks are structured as quasi-private corporations owned by member banks, but they operate under public purpose and oversight.
So, it’s “federal” in that it was created by federal law, but not fully owned by the government like, say, the Treasury.
2. “Reserve”
The original purpose was to provide a reserve of liquidity—a pool of funds banks could draw on in times of panic so depositors wouldn’t be left high and dry. Banks had to hold reserves at the Fed, and the Fed could lend against them. Today, while the role of reserves has changed (especially since 2008 when the Fed started paying interest on them), the name stuck.
3. “Bank”
Each of the 12 regional Federal Reserve Banks does operate like a bank—just not for you or me. They’re bankers’ banks:
- They hold deposits of commercial banks.
- They clear checks and electronic payments.
- They make loans to banks (the “discount window”).
But they don’t take deposits from the public, so in the everyday sense, they’re not a “bank.”
📌 In short:
- Federal = created by Congress, overseen by government, but not fully government-owned.
- Reserve = intended as a pool of emergency liquidity for banks.
- Bank = serves banks, not the general public.
BY ANY OTHER NAME
The name was chosen carefully—it reassured the public it was under federal authority, while also reassuring bankers it wasn’t a fully government-run entity. A political compromise in three words.
If we stripped away the politics and branding and just went for clarity, here are some alternatives that might fit better than Federal Reserve Bank:
1. United States Central Bank
-
This is what it really is: the country’s central bank, like the European Central Bank or the Bank of England.
-
It removes the confusion around “reserve” and “federal.”
-
Downside: when it was created in 1913, “central bank” was a dirty phrase in American politics (too much like a European monarchy’s tool of power).
2. National Monetary Authority
-
Highlights its main role: controlling money supply, credit, and interest rates.
-
Neutral, technical, less political.
-
Sounds more like a regulator than a banker.
3. Bankers’ Reserve System
-
Honest about who it serves first: the banking system.
-
Describes the original function as a reserve pool for banks.
-
Might not inspire public trust though — people could see it as “by the banks, for the banks.”
4. U.S. Monetary Stabilization Board
-
Puts the focus on its mission: stability of the financial system.
-
Emphasizes its Board of Governors rather than the quasi-corporate “banks.”
5. National Liquidity & Credit System
-
Reflects its practical role of providing liquidity to banks and setting credit conditions.
-
Less catchy, but more transparent.
📌 If I had to pick one accurate and simple name for today, it would probably be United States Central Bank — because that’s exactly what it is, even if the founders of the Fed avoided that term for political reasons.
So what does the FED do?
Stripped of all the jargon, the Federal Reserve (the Fed) is basically the traffic cop, mechanic, and emergency tow truck of the U.S. money system. Here’s what it really does:
1. Controls Money & Credit (Monetary Policy)
- The Fed sets short-term interest rates (through the “federal funds rate”).
- By raising or lowering rates, it makes borrowing money more expensive or cheaper, which slows down or speeds up the economy.
- Example: Raise rates → mortgages, car loans, and credit card interest get higher → people borrow/spend less → inflation cools. Lower rates → the opposite.
2. Manages Inflation and Jobs (Dual Mandate)
Congress gave the Fed two official goals:
- Keep prices stable (prevent runaway inflation).
- Promote maximum employment (keep people working).
Balancing these is like walking a tightrope in a windstorm.
3. Supervises and Regulates Banks
- The Fed makes sure commercial banks are safe and sound, with enough capital and reserves.
- It runs “stress tests” to see if banks could survive a financial storm.
- It enforces some consumer protection rules (though many are shared with other regulators).
4. Runs the Plumbing of the Financial System
- Processes payments, clears checks, and runs electronic transfer systems.
- Provides cash (literally prints and distributes U.S. dollars through the Treasury).
- Holds the reserves of commercial banks.
5. Lender of Last Resort
- During crises (like 2008 or 2020), the Fed can create money and lend it to banks or even corporations.
- This prevents the financial engine from seizing up.
- In short: when no one else will lend, the Fed steps in to keep the system alive.
6. Manages the Nation’s Currency Abroad
- Buys and sells U.S. dollars and Treasury bonds to influence exchange rates and global capital flows.
- Coordinates with other central banks during global crises.
he governance of the Federal Reserve is one of the trickiest parts, because it was deliberately designed to be independent from day-to-day politics while still being accountable to Congress. Here’s how it works:
Governance Structure
-
Board of Governors (Washington, D.C.)
-
7 members, nominated by the President and confirmed by the Senate.
-
Each serves a 14-year term (to outlast multiple administrations).
-
The Chair and Vice Chair are chosen by the President for renewable 4-year terms.
-
-
12 Regional Federal Reserve Banks
-
Located in cities like New York, Chicago, San Francisco, etc.
-
Each has its own president and board of directors (a mix of bankers, business leaders, and some public representatives).
-
These banks operate like quasi-private corporations but are overseen by the Board of Governors.
-
-
Federal Open Market Committee (FOMC)
-
This is the group that actually sets interest rates and conducts monetary policy.
-
Composed of the 7 Board of Governors plus 5 regional Fed bank presidents (with the New York Fed always having a seat, and the others rotating).
-
Independence vs. Political Power
-
The President’s power:
-
Can nominate Governors, including the Chair, but must have Senate approval.
-
Can’t fire a Governor or Chair just for policy disagreements (they can only be removed “for cause,” which is a high bar).
-
Can indirectly influence the Fed through appointments, but once in office, Governors are insulated.
-
-
Congress’s power:
-
Created the Fed by law, so in theory, Congress could change or even abolish it.
-
Requires the Fed to report to Congress twice a year (“Humphrey-Hawkins testimony”).
-
Controls the Fed’s mandate (price stability + maximum employment).
-
-
Fed’s independence:
-
Day-to-day monetary policy decisions (like raising or lowering interest rates) are not subject to presidential approval.
-
This independence is considered vital to prevent politicians from juicing the economy before elections.
-
In Practice
The President has influence, not control.
-
Appointing a Fed Chair aligned with their views can tilt policy over time (e.g., Trump appointed Jerome Powell, though later criticized him; Biden reappointed Powell despite policy disagreements).
-
But in the short term, a sitting President can’t call the Fed and order rate cuts or money printing.
📌 Bottom line:
The Fed is structured to serve the long-term stability of the financial system, not the short-term interests of any administration. The President gets to choose the referees, but once the game starts, the White House can’t blow the whistle.
PRESIDENTS VS THE FEDS – happens all the time
One of the juiciest parts of Federal Reserve history. Presidents have often clashed with the Fed, especially when elections or economic pain were at stake. Here’s a walk through some of the most notable fights:
Woodrow Wilson (1913) – Birth of the Fed
- Wilson signed the Federal Reserve Act, but even he had misgivings.
- He wanted the Fed to be independent yet accountable, but he underestimated how often presidents would later try to lean on it.
Harry Truman (1951) – The Fed-Treasury Accord
- During WWII and after, the Fed kept interest rates artificially low to help finance government debt.
- By 1951, inflation was surging, and the Fed wanted independence.
- Truman pushed back, wanting low rates to keep borrowing cheap.
- This clash led to the Fed-Treasury Accord, which cemented the Fed’s independence in setting monetary policy.
Lyndon Johnson (1960s) – Physical Pressure
- Johnson wanted low rates to fund both the Vietnam War and his Great Society programs.
- He summoned Fed Chair William McChesney Martin to his Texas ranch and reportedly shoved him against the wall, saying:
“Boys are dying in Vietnam, and Bill Martin doesn’t care.”
- Martin didn’t budge — rates rose.
Richard Nixon (1970s) – Arm-Twisting
- Nixon was obsessed with re-election in 1972.
- He pressured Fed Chair Arthur Burns to keep rates low and the economy juiced, despite inflation.
- Burns largely complied, contributing to runaway inflation later in the decade.
- This episode is often cited as proof of why the Fed needs independence.
Ronald Reagan (1980s) – The Volcker Showdown
- Fed Chair Paul Volcker raised interest rates sky-high to crush inflation, triggering a deep recession.
- Reagan publicly supported Volcker, even though unemployment soared, because he believed inflation had to be broken.
- Still, behind closed doors, Reagan’s advisers begged Volcker to ease up.
George H.W. Bush (1990s) – The Grudge
- Bush Sr. blamed Fed Chair Alan Greenspan for not cutting rates fast enough during the 1990–91 recession.
- He believed that tight money cost him the 1992 election against Bill Clinton.
- He reportedly said Greenspan’s policies were “unhelpful” — a mild word for a deep grudge.
Donald Trump (2017–2021) – Twitter vs. Powell
- Trump appointed Jerome Powell as Fed Chair but later called him the “enemy” of the U.S. economy.
- Trump blasted Powell on Twitter almost weekly, demanding rate cuts and more money printing.
- Powell mostly ignored the attacks, though the Fed did eventually cut rates in 2019 (likely for economic reasons, not politics).
Joe Biden (2021–2024 ) – Quiet Tension
- Inflation surged after COVID stimulus and supply shocks.
- The Fed raised rates aggressively under Powell (whom Biden reappointed).
- Biden has mostly stayed quiet, careful not to be seen as pressuring the Fed — a deliberate contrast to Trump.
Trump vs. the Fed — What’s New (2025)
-
Pressure for Lower Rates
Trump has been pushing the Fed to cut interest rates more aggressively. His appointee Stephen Miran, who is both a Fed Governor and a White House economic adviser, has publicly called for sharper reductions in rates. The Guardian+2Politico+2 -
Attempt to Remove Governor Lisa Cook
Trump asked the Supreme Court to allow him to fire Fed Governor Lisa Cook, a Biden appointee. The move was seen as an attempt to shift the balance of power on the Board. SCOTUSblog+2The Harvard Crimson+2
— In response, Cook sued, claiming her removal wasn’t lawful under the “for cause” provisions in the Federal Reserve Act. A judge issued a preliminary injunction stopping her removal. Wikipedia+2SCOTUSblog+2 -
Public Criticism & Concerns Over Independence
Trump has publicly criticized Fed Chair Jerome Powell for not cutting rates quickly enough. Powell has pushed back, calling some of Trump’s remarks “cheap shots” and defending the Fed’s independence. Reuters+3The Daily Beast+3Newsweek+3
— International observers like the Bundesbank warned that political interference could threaten U.S. financial stability. Reuters -
Risk to Fed’s Institutional Independence
With Miran’s appointment and the attempted removal of Cook, many analysts see Trump as trying to gain greater influence over the Fed — possibly enough to control major decisions on interest rates and policy. Some fear this could erode norms that protect the Fed from political swings. The Harvard Crimson+3AP News+3Politico+3
The Pattern
- Presidents love low rates before elections.
- The Fed often insists on doing the opposite if inflation is high.
- When presidents win, they forget; when they lose, they blame the Fed.
📌 Bottom line:
The history of the Fed is a history of presidents trying to tug on the steering wheel — and sometimes succeeding, sometimes failing. The tension is built into the system: elected leaders want quick wins, while the Fed is supposed to play the long game.
📌 In one sentence: The Fed’s job is to keep the U.S. financial system stable, money flowing, and inflation/job growth balanced — even if it means stepping in with powers no ordinary bank could ever dream of.
EXTRA CREDIT:
The Federal Reserve vs the Treasury
Federal Reserve Cuts Interest Rates – puts everyone to sleep and destroys the economy in one long boring speech.
How the U.S. Government Counterfeits Its Own Money
“TRANSITORY” is back
© 2025 insearchofyourpassions.com - Some Rights Reserve - This website and its content are the property of YNOT. This work is licensed under a Creative Commons Attribution 4.0 International License. You are free to share and adapt the material for any purpose, even commercially, as long as you give appropriate credit, provide a link to the license, and indicate if changes were made.
