is the central bank of the United States.

So what's the difference between the Fed

and a commercial bank like this one?

Let's say I use a bank to deposit

and withdraw cash or to take out a loan.

When I deposit money at a bank,

the bank doesn't just hold on to my cash,

it lends it out to other customers.

The bank serves as an important

middleman in the economy.

But if everyone tries to take out

money at the same time,

a bank might not have enough cash on hand.

That's when a central bank could step in

to lend extra cash

so the bank can stay open.

The U.S. Congress created the Fed

in 1913 after a series of financial panics

to stabilize and supervise

the country's banking system.

The Federal Reserve Act

established the Fed as a bank to other banks,

where it cleared checks and provided currency.

Congress also tasked the Fed

with what would become

its most important job,

conducting monetary policy.

Monetary policy is how the Fed

changes interest rates,

basically the amount you, the borrower,

can be charged for borrowing money.

Fed interest rates can affect anything

from how much you pay for

a car loan or a home mortgage.

The Fed funds target rate

determines how much banks pay

to lend to each other,

which in turn affects

the amount of money businesses

and consumers have to spend.

When the Fed sets its target rate

it has two key goals in mind

stable prices and maximum employment.

The Fed wants prices to stay stable

so you can plan your current and future budgets.

Think of Germany where the

price for a loaf of bread

increased from one mark in 1918

to 200 billion marks five years later.

The Fed also has to keep

a close eye on employment.

If unemployment is high,

the Fed lowers interest rates to

encourage businesses and consumers

to borrow and spend their money

instead of saving it.

That's what the Fed did

during the financial crisis.

When the unemployment rate spiked

in 2008, the Fed lowered its key rate to zero.

It also took unprecedented steps

to lower rates by buying assets

like government bonds

from financial institutions.

This pumped money into the economy

to encourage banks to lend.

The Fed's policies have

helped the jobs market recover

but not everyone is happy,

especially savers who have

basically made no interest on

their money in the bank

for the past 10 years.

Some have even called to

abolish the Fed altogether.

Some politicians

have called the Fed political

for keeping interest rates so low.

But even though the Fed is

ultimately held accountable by Congress,

it operates as an independent entity.

The Fed is made up of the Board of Governors

which includes seven members called Governors

including the Fed Chair and Vice Chair.

Fed Governors are appointed by the President

and approved by the Senate.

The Fed also includes 12 regional reserve banks

in cities across the country.

Each regional bank has its own Fed President.

Governors and rotating Fed Presidents

meet eight times a year in Washington

and they vote on where to set rates.

Other central banks around the world

and traders keep a very close eye

on Fed decisions.

That's because the smallest

change in Fed policy can ripple

throughout stock markets

ultimately down to your own pocketbook.