What Is the Federal Reserve? How the Fed Is Built and What It Does

The Federal Reserve is the central bank of the United States: it sets US monetary policy, supervises banks and runs core parts of the country's payment system.

People call it the Fed, and its rate decisions feed into mortgage rates, Treasury yields and the dollar. This page covers how the Fed is built, what Congress asks it to do, how a rate decision is made and carried out, how its balance sheet fits in, and where to follow it in Kresmion's data. It is descriptive throughout.

How the Fed is built

The Federal Reserve was created by the Federal Reserve Act, which President Woodrow Wilson signed on 23 December 1913. It is a system with three parts.

• The Board of Governors, a federal agency in Washington, D.C. Its seven governors are nominated by the President and confirmed by the Senate for staggered 14-year terms. A Chair and a Vice Chair are chosen from among them for four-year terms, which can be renewed.
• Twelve Federal Reserve Banks, each serving a district of the country, with 24 branches between them. They examine banks, run payment services and gather information on their regional economies, and each is separately incorporated with its own board of directors.
• The Federal Open Market Committee (FOMC), which sets monetary policy. It has twelve voting members: the seven governors, the president of the Federal Reserve Bank of New York, and four of the other eleven Reserve Bank presidents, who vote for one-year terms on a rotating basis. The presidents who are not voting in a given year still attend the meetings and take part in the discussion.

Commercial banks that are members of the system hold stock in their district's Reserve Bank, which leads some readers to think the Fed is privately owned. The Fed's own answer is that it is not "owned" by anyone: holding that stock is a legal condition of membership, the Reserve Banks are not run for profit, and the Board is a federal agency.

What Congress asks it to do

Section 2A of the Federal Reserve Act directs the Fed and the FOMC to promote "maximum employment, stable prices, and moderate long-term interest rates." The first two goals are what the Fed's own statements call its dual mandate.

The FOMC has put a number on the price goal. Its Statement on Longer-Run Goals and Monetary Policy Strategy was first adopted in January 2012 and most recently reaffirmed effective 27 January 2026. It says that inflation of 2 percent, measured by the annual change in the price index for personal consumption expenditures (PCE), is most consistent over the longer run with its mandates. That index is a different measure from the consumer price index covered in what CPI is. The Committee sets no fixed number for maximum employment, because it is shaped largely by factors outside monetary policy.

The Fed describes five key functions: conducting monetary policy, promoting the stability of the financial system, supervising and regulating financial institutions, fostering the safety and efficiency of payment and settlement systems, and promoting consumer protection and community development.

Independent, and accountable to Congress

Congress sets the Fed's goals, but the Fed decides how to reach them. In the Fed's words, decisions of the Board and the FOMC about how to reach those goals "do not require approval by the President or anyone else in the executive or legislative branches of government." The Board is also not funded by congressional appropriations.

Accountability runs through disclosure and testimony. The Board reports to Congress, the Chair testifies there, and the Fed sends Congress a Monetary Policy Report twice a year. It publishes independently audited financial statements, and the FOMC releases the minutes of each scheduled meeting three weeks after the decision.

How a rate decision is made and carried out

The FOMC holds eight regularly scheduled meetings a year. At each one it sets a target range for the federal funds rate, the overnight rate at which banks lend reserves to one another. The range is currently 25 basis points wide; a basis point is one hundredth of a percentage point. A statement at 2:00 p.m. Eastern Time announces the decision and the vote, and an implementation note lists the rates the Fed will use to hold the market rate inside the range. The mechanics, and how the Fed's approach differs from the ECB, the Bank of Japan and the Bank of England, are covered in what a central bank policy rate is.

The decision of 16 September 2026 shows each part of the system at work.

Three bodies were involved. The FOMC set the range and directed the New York Fed's trading desk. The Board set the rate it pays on reserves. And the boards of directors of seven Reserve Banks requested the new discount rate, which the Board approved.

Together these rates hold the market rate in the range. The rate paid on reserve balances, the main tool, sits inside the range. The overnight reverse repo rate, open to money funds and other non-banks, sits at the bottom. The standing repo rate and the discount rate sit at the top. The discount rate is what Reserve Banks charge when they lend to banks and other depository institutions, a role the Fed lists among the Reserve Banks' core functions. Reserve requirements no longer play a part: the Board cut reserve requirement ratios to zero effective 26 March 2020.

The balance sheet

The Fed's second set of tools works through the size and mix of what it holds. When it buys bonds with newly created reserves, as it did in the rounds of quantitative easing after 2008 and in 2020, its balance sheet grows; when it lets them mature without replacing them, the balance sheet shrinks. Both are covered in what quantitative easing and tightening are. The Fed's total assets stood at about $6.75 trillion on 23 September 2026, according to its weekly H.4.1 release.

The same implementation note also told the desk to buy Treasury bills, and if needed other Treasury securities with three years or less to run, when appropriate to keep reserves at an ample level, and to reinvest principal from its agency securities into bills. In October 2019 the Fed called similar bill purchases "purely technical measures" that "do not represent a change in the stance of monetary policy", and since December 2025 the New York Fed has run them as reserve management purchases; the QE explainer covers that history.

The Fed and the Treasury are separate. The Treasury borrows for the government by auctioning bills, notes and bonds (see Treasury bills, notes and bonds), and the Treasury keeps its cash account at the Fed. The Fed does not decide how much the government borrows or spends.

Following the Fed in Kresmion

Kresmion's free central banks tracker lists the Federal Reserve alongside the other central banks it covers. For the Fed it shows the midpoint of the target range, the size and date of the last change, and links to the Fed's own statistics, calendar and press pages. The free money markets page shows the corridor itself: the target range, the rate on reserves and the reverse repo rate, with the effective federal funds rate, SOFR and the other overnight rates placed inside the range, each with its own observation date and source.

Fed funds futures and overnight index swaps are the main instruments that price the next meeting, as the policy rate explainer describes. Alongside them, the odds pages carry Polymarket markets on Fed decisions, one contract per outcome, with each market's rules and price history. How prediction markets price the Fed covers reading the whole set of outcomes. Those prices change with every data release; they are a reading of the market at a moment, not a forecast. Signed-in readers can also follow the Fed's balance sheet, bank reserves and the reverse repo facility on Kresmion's liquidity dashboard.

Honest limitations

This page describes the Fed's structure and tools as its own publications set them out; it does not judge whether a decision was right. The 16 September 2026 rates were the ones in force when this page was written, and they change at the next decision that moves them, so the trackers above, each with its observation date, are the place to read the current level. The balance sheet figure is one weekly reading. Prediction-market prices on the odds pages can be thin, and a price can move a long way on little volume. The Fed's committee membership changes every January, so this page does not name the people serving on it.

Key takeaways

Frequently asked questions

Who owns the Federal Reserve?

No one, in the Fed's own description. Member banks hold stock in their district Reserve Bank because the law requires it as a condition of membership, but the Reserve Banks are not run for profit, and the Board of Governors is a federal agency that reports to Congress.

Does the President control the Fed?

Not over its decisions. The President nominates the governors, including the Chair, and the Senate confirms them. Section 10 of the Federal Reserve Act provides that a governor holds office for a 14-year term unless sooner removed for cause by the President. What counts as cause is being tested in court: in June 2026 the Supreme Court let Governor Lisa Cook stay in office while her challenge to her removal goes forward. Once governors are in office, the Board's and the FOMC's decisions on how to reach the goals Congress set do not need approval from the President or from anyone else in the executive or legislative branches.

How often does the Fed change interest rates?

The FOMC holds eight scheduled meetings a year and can meet in between if it chooses. It can raise, cut or hold the target range at any meeting, and a new range takes effect the day after the statement.

What is the difference between the Fed and the Treasury?

The Treasury is the government's finance department: it collects revenue, pays the government's bills and borrows by selling Treasury securities. The Fed is the central bank: it sets monetary policy and holds the Treasury's cash account, but it does not decide how much the government borrows or spends.

Can Kresmion tell me what the Fed will do next?

No. Kresmion shows the current policy rates, where overnight rates sit inside the Fed's range, and what prediction markets price, each with a timestamp. None of these is a forecast of the decision.

This page is information, not investment advice.

---

Source: Board of Governors of the Federal Reserve System, Who We Are, https://www.federalreserve.gov/aboutthefed/fedexplained/who-we-are.htm ; Federal Reserve FAQ, What is the purpose of the Federal Reserve System?, https://www.federalreserve.gov/faqs/about_12594.htm , and Who owns the Federal Reserve?, https://www.federalreserve.gov/faqs/about_14986.htm ; Federal Reserve Act Section 10, https://www.federalreserve.gov/aboutthefed/section10.htm ; Federal Reserve Act Section 2A, https://www.federalreserve.gov/aboutthefed/section2a.htm ; FOMC, Statement on Longer-Run Goals and Monetary Policy Strategy (reaffirmed effective 27 January 2026), https://www.federalreserve.gov/monetarypolicy/files/fomc_longerrungoals.pdf ; About the FOMC, https://www.federalreserve.gov/monetarypolicy/fomc.htm ; FOMC meeting calendars (minutes released three weeks after each decision), https://www.federalreserve.gov/monetarypolicy/fomccalendars.htm ; FOMC statement, 16 September 2026, https://www.federalreserve.gov/newsevents/pressreleases/monetary20260916a.htm ; Implementation Note, 16 September 2026, https://www.federalreserve.gov/newsevents/pressreleases/monetary20260916a1.htm ; Federal Reserve press release, 11 October 2019, https://www.federalreserve.gov/newsevents/pressreleases/monetary20191011a.htm ; Federal Reserve Bank of New York, Statement Regarding Reserve Management Purchases Operations, https://www.newyorkfed.org/markets/opolicy/operating_policy_251210a ; Federal Reserve, Reserve Requirements, https://www.federalreserve.gov/monetarypolicy/reservereq.htm ; SCOTUSblog, "Court prevents Trump from firing Fed governor" (June 2026), https://www.scotusblog.com/2026/06/court-prevents-trump-from-firing-fed-governor/ ; Federal Reserve H.4.1, total assets (WALCL, via FRED), week of 23 September 2026, https://fred.stlouisfed.org/series/WALCL ; Kresmion central banks tracker, money markets page and odds pages.

Kresmion Research.