What is the primary function of the Federal Reserve?

The primary function of the Federal Reserve is controlling monetary policy. This involves managing the supply of money and interest rates within the economy to ensure stability and to promote economic growth. The Federal Reserve utilizes various tools, such as open market operations, the discount rate, and reserve requirements, to regulate the economy. By adjusting interest rates, the Federal Reserve can influence borrowing and spending, which in turn affects inflation and employment levels. This function is crucial for maintaining a stable financial system and managing the overall economic environment.

In contrast, regulatory roles such as overseeing state banks or approving bank loans fall under different aspects of financial oversight and consumer protection, which are not the primary responsibilities of the Federal Reserve. Setting fiscal policy relates to government spending and taxation decisions made by Congress and the Executive Branch, not the Federal Reserve’s mandate. Thus, the focus on managing monetary policy clearly defines the Federal Reserve's main role in the economy.