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This is Steve Emberwith the VOA Special English program IN THE NEWS.
Earlier this week, the United States Federal Reserve Boardannounced another cut in the amount banks pay to borrow money for ashort term. The Federal Reserve Board is a part of America's centralbank.
The United States Congress established the Federal Reserve Systemin Nineteen-Thirteen when it approved the Federal Reserve Act. Thelegislation created Federal Reserve banks in twelve areas of thecountry. They are supervised by the Board of Governors of theFederal Reserve System. All national banks must be members of thesystem. State banks can be members if they meet federalrequirements.
Seven people serve on the Board of Governors. The group isusually known as the Federal Reserve Board. Each member is appointedby the President of the United States to a fourteen year term. TheSenate must approve the appointments of the board members.
The President names one member to serve as chairman for fouryears. The current chairman of the Federal Reserve Board is AlanGreenspan. He took office for a fourth term as Federal ReserveChairman on June twentieth of the year Two-Thousand. MisterGreenspan has been named chairman by presidents Reagan, Bush andClinton.
The main responsibility of the Federal Reserve Board is toinfluence the economy of the United States to avoid inflation andsupport continuing growth. It does this by controlling the nation'sbanking system and money supply. The Federal Reserve also setsimportant interest rates. Interest is the money people or businessespay to banks for borrowing money.
The Federal Reserve establishes interest rates for loans thatbanks in the federal banking system make to each other. This is thefederal funds rate. This rate influences interest rates for allother kinds of loans in the country.
About two-thirds of the economic activity in the United Statesdepends on personal spending. Lower interest rates set by theFederal Reserve Board are supposed to increase personal spending byreducing the cost of borrowing.
The Federal Reserve Board has been reducing the federal fundsinterest rate all year. It started with a half-point cut on thesecond business day in January. It continued to cut a half-point ateach of the three Board meetings since then. The Board even cutanother half-point between meetings on April eighteenth. Thisreduced the rate from six and one-half percent in January to fourpercent. Then on Wednesday, the Board cut the interest rate by onequarter percent. So the federal funds rate is now three and threequarters percent. Experts say the series of interest rate cuts thisyear is the most aggressive action taken by the American centralbank in nineteen years.
This VOA Special English program IN THE NEWS was written by NancySteinbach. This is Steve Ember.