Fact or fiction? The Federal Reserve plays many roles as the nation’s central bank, yet misconceptions can make their way into the public discourse. Last year, we debunked four common myths about the Fed. Read on for some more myth-busting.
Myth: The Federal Reserve is funded by taxpayer money.
The Federal Reserve does not receive any funding through the congressional budgetary process. Instead, income for the Federal Reserve comes from the interest on government securities that it has acquired through open market operations. After paying its expenses, the Federal Reserve turns the rest of its earnings over to the U.S. Treasury.
Myth: The Federal Reserve is controlled by the government or Wall Street.
The Federal Reserve is an independent and nonpartisan organization, accountable to the American people.
The Federal Reserve System is not "owned" by anyone. The Fed derives its authority from Congress via the Federal Reserve Act of 1913. This central banking system blends public and private characteristics.
- The Board of Governors is an agency of the federal government and oversees the 12 Reserve banks.
- The Reserve banks are organized similarly to private-sector corporations. Each operates within its own geographic area and is separately incorporated with its own board of directors. The regional banks were designed to represent the voice of Main Street.
Myth: The Federal Reserve is unconstitutional.
While the Federal Reserve is not mentioned in the Constitution, it was created nearly 100 years ago under President Woodrow Wilson through a congressional act, the Federal Reserve Act of 1913. This act established the Federal Reserve System as the central bank of the United States to provide the nation with a safer, more flexible and more stable monetary and financial system. The law sets out the purposes, structure and functions of the System, and includes aspects of its operations and accountability.
The Federal Reserve System was initially created to address banking panics. It is now charged with several broader responsibilities, including fostering a sound banking system and a healthy economy.
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Want to learn more? Check out “In Plain English: Making Sense of the Federal Reserve” (Off-site).
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