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The Fed

"The Fed" is a short-hand that refers to the Federal Reserve or Federal Reserve System, the central banking system of the United States. Traders often discuss the actions of the Fed, primarily interest rate decisions, as they significantly impact all financial markets.The Fed shouldn't be confused or substituted with the term "the Feds" and doing so tells everyone you're a total noob. The term "the Feds" refers to US Federal law enforcement, including such agencies as the FBI (Federal Bureau of Investigation), DEA (Drug Enforcement Administration), or ATF (Bureau of Alcohol, Tobacco, Firearms, and Explosives).The Federal Reserve System was established in 1913 and is composed of three key entities:The Board of Governors, which oversees and sets policies for the Federal Reserve System. It's headed by the Chairman, who acts as the face and chief policymaker of the Fed.Twelve Federal Reserve Banks, which serve as the operating arms of the central bank, responsible for carrying out the policies set by the Board of Governors.The Federal Open Market Committee (FOMC), which is responsible for monetary policy, including setting interest rates.The Fed was created to address financial panics and to provide a more stable and flexible monetary and banking system. It acts as the lender of last resort. Over the years, its role has expanded to include promoting maximum employment and price stability.De facto, the Fed holds a great responsibility for the global financial system as the US dollar and bond market carries extraordinary weight. Other central banks tend to follow the Fed's lead, which can result in problems of groupthink.A classic expression of traders is 'Don't fight the Fed' which means that traders and investors should align their investments with the policies and actions of the Federal Reserve. The saying suggests that, since the Fed has significant influence over the economy and financial markets, it's better not to try to bet against it, but instead to adapt to its actions and decisions. When rates are set to go up, be cautious and bet on the US dollar. When rates are falling or flattening, do the opposite. The expression highlights the power and importance of the central bank in shaping the economic and financial landscape.

The Fed shouldn't be confused or substituted with the term "the Feds" and doing so tells everyone you're a total noob. The term "the Feds" refers to US Federal law enforcement, including such agencies as the FBI (Federal Bureau of Investigation), DEA (Drug Enforcement Administration), or ATF (Bureau of Alcohol, Tobacco, Firearms, and Explosives).

The Federal Reserve System was established in 1913 and is composed of three key entities:

The Board of Governors, which oversees and sets policies for the Federal Reserve System. It's headed by the Chairman, who acts as the face and chief policymaker of the Fed.
Twelve Federal Reserve Banks, which serve as the operating arms of the central bank, responsible for carrying out the policies set by the Board of Governors.
The Federal Open Market Committee (FOMC), which is responsible for monetary policy, including setting interest rates.

The Fed was created to address financial panics and to provide a more stable and flexible monetary and banking system. It acts as the lender of last resort. Over the years, its role has expanded to include promoting maximum employment and price stability.

De facto, the Fed holds a great responsibility for the global financial system as the US dollar and bond market carries extraordinary weight. Other central banks tend to follow the Fed's lead, which can result in problems of groupthink.

A classic expression of traders is 'Don't fight the Fed' which means that traders and investors should align their investments with the policies and actions of the Federal Reserve. The saying suggests that, since the Fed has significant influence over the economy and financial markets, it's better not to try to bet against it, but instead to adapt to its actions and decisions. When rates are set to go up, be cautious and bet on the US dollar. When rates are falling or flattening, do the opposite. The expression highlights the power and importance of the central bank in shaping the economic and financial landscape.