The United States Federal Reserve System was founded by Congress in 1913 to provide the nation with a safer, more flexible, and more stable monetary and financial system (2005). Over time the Federal System has expanded into additional areas to include globalization, technology, innovation, diversity, and ethics. The Federal Reserve System is an organization that should demand more attention. This private organization affects global markets by playing an important role as the reserve currency of the world. Moreover, the Federal Reserve is impacted by the world financial markets.
The Federal Reserve affects global markets by setting interest rates, establishing the nation’s monetary policy, and by controlling the printing of U.S. dollars. Interest rates are important to the global economy because it determines the supply and demand of U.S. exports and dollars. Furthermore, changes to the monetary policy affect the value of the dollar on currency markets (2005). Higher interest rates establish the assumption of a strong economy; therefore, the cost of imports is lower and the cost of exports higher. For this reason, market investors pay close attention to data releases and statements by the Federal Reserve in order to adjust to changes to the monetary policy. The Federal Reserve implements its monetary policy through its control over the federal funds rate—the rate at which depository institutions trade balances at the Federal Reserve (2005). Essentially changes to the value of the U.S. currency will result in changes to spending decisions. The Federal Reserve attempts to control the risk of the global supply and demand trends by inserting or printing U.S. notes into the economy. Thomas Jefferson stated, “I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have risen up a moneyed aristocracy that has set the