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Federal Reserve definition
The Federal Reserve is the central bank of the United States, usually called the Fed. It runs the country's monetary policy and works to keep prices stable and the financial system sound.
The Federal Reserve acts mainly through interest rates and liquidity tools. Its Federal Open Market Committee sets the target range for the federal funds rate, which feeds into borrowing costs, bond yields, share valuations, and the value of the US dollar.
The Federal Reserve is the US counterpart to the European Central Bank and the Bank of England. A hawkish Fed message can lift the US dollar and weigh on stocks, while a dovish message can soften the dollar and support risk assets.
Federal Reserve Example
The Federal Reserve raises interest rates after inflation stays above its target.
Traders may expect higher US borrowing costs and stronger returns on US dollar assets.
The US dollar may rise, while stocks and gold may fall if markets believe tighter policy will slow growth.
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