IN THE NEWS #487 - Federal Reserve

By Nancy Steinbach

This is Steve Ember with the VOA Special English program IN THE NEWS.

Earlier this week, the United States Federal Reserve Board announced another cut in the amount banks pay to borrow money for a short term. The Federal Reserve Board is a part of America's central bank.

The United States Congress established the Federal Reserve System in Nineteen-Thirteen when it approved the Federal Reserve Act. The legislation created Federal Reserve banks in twelve areas of the country. They are supervised by the Board of Governors of the Federal Reserve System. All national banks must be members of the system. State banks can be members if they meet federal requirements.

Seven people serve on the Board of Governors. The group is usually known as the Federal Reserve Board. Each member is appointed by the President of the United States to a fourteen year term. The Senate must approve the appointments of the board members.

The President names one member to serve as chairman for four years. The current chairman of the Federal Reserve Board is Alan Greenspan. He took office for a fourth term as Federal Reserve Chairman on June twentieth of the year Two-Thousand. Mr. Greenspan has been named chairman by presidents Reagan, Bush and Clinton.

The main responsibility of the Federal Reserve Board is to influence the economy of the United States to avoid inflation and support continuing growth. It does this by controlling the nation's banking system and money supply. The Federal Reserve also sets important interest rates. Interest is the money people or businesses pay to banks for borrowing money.

The Federal Reserve establishes interest rates for loans that banks in the federal banking system make to each other. This is the federal funds rate. This rate influences interest rates for all other kinds of loans in the country.

About two-thirds of the economic activity in the United States depends on personal spending. Lower interest rates set by the Federal Reserve Board are supposed to increase personal spending by reducing the cost of borrowing.

The Federal Reserve Board has been reducing the federal funds interest rate all year. It started with a half-point cut on the second business day in January. It continued to cut a half-point at each of the three Board meetings since then. The Board even cut another half-point between meetings on April eighteenth. This reduced the rate from six and one-half percent in January to four percent. Then on Wednesday, the Board cut the interest rate by one quarter percent. So the federal funds rate is now three and three quarters percent. Experts say the series of interest rate cuts this year is the most aggressive action taken by the American central bank in nineteen years.

This VOA Special English program IN THE NEWS was written by Nancy Steinbach. This is Steve Ember.