Federal Reserve

central banking system of the United States

The Federal Reserve (sometimes called "The Fed") is a large central bank in Washington, D.C. that was founded in 1913. It lends money to other, smaller banks. The Federal Reserve Board is a group of financial leaders who work for the Federal Reserve and decide how much to charge these banks for borrowing money (this charge is called an "interest rate"). The Federal Reserve interest rate is decided by the Federal Reserve Board after studying the condition of the U.S. economy.

When the economy is growing too fast, the Federal Reserve makes borrowing more expensive by increasing the interest rate, which means people and companies spend less, which discourages inflation. When economic growth slows, the interest rate is decreased so that borrowing will increase and there will be growth.

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