The Federal Reserve: monetary policy can have reverberations years later, so it's best to pay attention

14 Questions About The Federal Reserve You Were Too Embarrassed To Ask

STEVEN PERLBERG

As market-watchers, nothing gives us heart palpitations quite like a meeting of the Federal Open Market Commission.
And fortunately, a big one is coming up this week!
But for most people, the Federal Reserve invokes confusion, derision, or nausea.

Inspired by some other great "explainers" we've seen lately, here's the definitive Federal Reserve Q&A, answering all your questions shame free. Hopefully, this will help you understand this week's big meeting, as well as all future ones.

Let's get started.

1. What is the Federal Reserve?
2. How is the Fed set up?
3. Those are very random cities.
4. This seems complicated and arbitrary. Why do we even have a Federal Reserve?
5. So the point of the Fed is to control economic panics? How?
6. How can the Fed be the lender of last resort?
7. That doesn't seem sustainable.
8. Expanded? What does the Fed do now?
9. So what monetary measure can the Federal Reserve take if rates are at zero?
10. Will QE ever stop?
11. So what the Fed says or does really impacts the market?
12. Hold on, let's go back a second. You never said anything about the unemployment rate.
13. But why do people hate the Fed?
14. So what's the likelihood of another crisis?

If you can answer that, you should be a central banker. This is hard stuff. The people at the Fed are genuinely trying to ensure the health and stability of the American economy. In retrospect, it's easy to see clear central banking mistakes. During his tenure as Fed Chair in the 1990s, Alan Greenspan was hailed as a demigod for having "figured out" monetary policy. It wasn't until the housing market crashed years later that people realized his policy of ultra-low interest rates and deregulation fostered an economic powder keg.

Monetary policy can have reverberations years — perhaps decades — later, so it's best to pay attention. It's not easy work, but hopefully now you understand it a little better.

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