If you were watching any of the major financial new channels, or reading any publications today, you would have seen that the chairman of the Federal Reserve, Ben Bernanke, issued a report to Congress today about the overall state of the economy. In addition to today’s report to Congress the Fed has been in the media quite often during the last month or so; from first indicating that they might start to wind down their purchasing operations, to withdrawing that statement, to indicating today that they might start tapering their open market purchases this year depending on how the economy was doing.
The Federal Reserve has had a very powerful influence on the financial markets since the financial crisis; from assisting the AIG bailout with the Maiden Lane asset purchase to the current round of Quantitative Easing the central bank has gradually assumed a more and more powerful role in the financial doings of the stock market. Despite the increased presence and media coverage of the Fed, there is still some confusion as to what exactly it is.
Long story short, the Federal Reserve was created in 1913 to try and stem the tide of bank crises that were happening every 10-15 years. The bank was granted the exclusive right to print the currency of the United States, as well as the power to set specific interest rates for inter-bank borrowing and etc. Even though the name Federal Reserve might lead to believe it is a government entity, the Federal Reserve is a private corporation.
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Currently, the most prominent report put out by the Fed is the “beige book,” which is basically the opinion of the 12 regional Federal Reserve banks as to how the economy has performed during the period in question. I have provided links to both the Federal Reserve website, as well to several other government reports concerning economic activity.
The information is not hidden, but it is up to us as investors to interpret the data, and figure out what it means for us and our investments.
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