Federal Reserve Station: The Federal Reserve Explained for Kids

Federal Reserve Station explains the bank behind the banks. Goldie gives the Federal Reserve explained for kids by starting with a simple question: who keeps the whole money system steady? In the United States, that job belongs to the central bank, called the Federal Reserve, or “the Fed.”

The Federal Reserve explained for kids

Congress created the Federal Reserve in 1913 with the Federal Reserve Act. Its leaders work to keep prices stable and to support as many jobs as the economy can sustain. In addition, the Fed supervises many banks, lends to banks when needed and helps money move safely between banks.

How the Federal Reserve System is organized

The system has a Board of Governors in Washington, D.C., and twelve regional Federal Reserve Banks, such as the Federal Reserve Banks of New York, Chicago and San Francisco. A committee called the Federal Open Market Committee meets regularly to set monetary policy.

Monetary policy, interest rates and inflation

Monetary policy means the steps the Fed takes to influence interest rates and the amount of money and credit in the economy. When inflation is too high, the Fed may raise its target interest rate, so borrowing costs more and spending slows. When the economy is weak, the Fed may lower rates. The Fed says it aims for 2% inflation over time.

The Fed, the Treasury and Federal Reserve notes

The Federal Reserve and the U.S. Treasury are different. The Treasury manages the government’s money, collects taxes and borrows by selling Treasury securities. Meanwhile, the Fed is the central bank. Paper dollars are Federal Reserve notes, printed by the Treasury’s Bureau of Engraving and Printing and issued by the Fed.

Keep exploring

See how the dollar changed over time in Gold, Silver and Paper Money, or return to Banking Galaxy to see how everyday banks work.