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  • The Powell Behind the Fed’s Throne as published in InsideNova.com

The Powell Behind the Fed’s Throne as published in InsideNova.com

Barring unforeseen circumstances, Jerome Powell will become the next chair of the Federal Reserve (the Fed) when Janet Yellen steps down in February 2018. While we wait to find out more about Powell’s policies, there’s a bigger puzzle you may be pondering: What is “the Fed,” anyway (and what’s it to me)?

The Fed was created in 1913 to be our nation’s central bank. Its board of governors (on which Powell already sits) is based in Washington, DC. The board also oversees 12 regional reserve branches across the country. Collectively, these bodies are tasked with three duties:

1. Monetary Policy – Promoting “maximum employment, stable prices and moderate long-term interest rates”

2. Supervision and Regulation – Overseeing U.S. banks and gathering financial industry data

3. Financial Services – Serving as a bank for U.S. banks, and for the country’s monetary operations – issuing currency, managing the government’s bank accounts, borrowing money, etc.

Of these essentials, monetary policy tends to grab the greatest headlines, as the Fed grapples with how much and how often it should raise the federal funds rate. Its seven board members and a rotating representation of reserve bank presidents form the Federal Open Market Committee (FOMC), which meets eight times annually to perform this role.

As an investor, what can you do to prepare for rising (or falling) interest rates, and tighter or looser banking regulations? Actually, not much. Even if we knew what the Fed was going to do next (which we don’t), we can’t know how the global markets will respond to the news anyway.

That said, rising or falling interest rates and maintaining the integrity of our banking system impacts many facets of your wealth: saving, investing, spending and debt. So what can you do? Your best bet is to establish practical ways to manage your debt; wise ways to save and invest; and sensible ways to spend. These are the factors that matter the most in your life, and over which you can exercise the most control – no matter who the Fed chair may be.

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