Crashes and the rules they brought · 1929–1950s
1935
The Fed's rate-setting committee
The Banking Act of 1935 creates the Federal Open Market Committee.
The Banking Act of 1935 set up the Federal Open Market Committee, which decides how the Fed buys and sells securities. In time it came to steer the overnight rate banks charge each other: the federal funds rate.
💡 Why it made sense then
Monetary policy needed one body making decisions for the whole country.
Ideas it gave us
- 🌍 Federal funds rate
The federal funds rate is the interest rate at which US banks lend reserves to each other overnight. The Federal Reserve sets a target range for it, and it drives borrowing costs across the economy.
- 🌍 Monetary policy
Monetary policy is how a central bank manages interest rates and the money supply to keep inflation low and employment high. Raising rates cools the economy; cutting them stimulates it.
Practise with $10,000 in play money
Free. No real money involved.