Encyclopedia article
Federal Reserve
Central bank of the United States, created in 1913.
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See every claimThe Federal Reserve System, often called the Fed, is the central bank of the United States, created by the Federal Reserve Act on December 23, 1913, after a series of financial panics 1811. It consists of a Board of Governors in Washington, D.C., 12 regional Federal Reserve Banks, and the Federal Open Market Committee (FOMC), which sets monetary policy 89. Congress directs it to pursue maximum employment and stable prices, commonly called the dual mandate, alongside moderate long-term interest rates 19. Its role, independence and record have been debated, and in September 2026, under chair Kevin Warsh, it raised interest rates for the first time in three years 25.
Mandate and functions
#Congress set three objectives for monetary policy in the Federal Reserve Act: maximum employment, stable prices and moderate long-term interest rates 112. The first two are commonly called the dual mandate 1. Stable prices are interpreted as inflation of 2 percent per year on average 14.
The Fed describes five functions: conducting monetary policy, promoting financial system stability, supervising and regulating financial institutions, fostering safe and efficient payment and settlement systems, and promoting consumer protection and community development 89. Its duties also include providing financial services to depository institutions, the U.S. government and foreign official institutions 1.
A principal motivation for the Fed's creation was to address banking panics 111. Other stated purposes included furnishing an elastic currency, affording means of rediscounting commercial paper and establishing more effective supervision of banking 1. Banking panics in the 19th century were widely blamed on an inelastic currency 11.
Structure
#The framers of the Federal Reserve Act rejected a single central bank in favour of a system with a central governing Board, 12 decentralized Reserve Banks and a combination of public and private characteristics 916. The Fed says it communicates frequently with executive branch and congressional officials while making its decisions independently 9.
The Board of Governors is a federal agency with seven members appointed by the president and confirmed by the Senate for staggered 14-year terms 189. On May 13, 2026, the Senate confirmed Kevin Warsh by a 54–45 vote as the 17th chair 1.
The 12 Reserve Banks have 24 branches and are the operating arms of the system, each serving its own district 8. Sources differ on how district boundaries were drawn: the Fed states they were based on trade regions existing in 1913 and related economic considerations, while Wikipedia states they reflected population distribution 19.
The FOMC has 12 voting members: the seven governors and five Reserve Bank presidents 18. Congress created it as part of the system through legislation in 1933 and 1935 13.
The Reserve Banks are technically private corporations with their own boards of directors, and they are overseen by the Board of Governors 11. Member banks provide their capital, and national banks are required to become members, while membership is optional for state-chartered banks 11. Required stock equals 3 percent of a member bank's capital and surplus and cannot be sold or traded 1. About 38 percent of U.S. banks are members 1.
Monetary policy tools
#The FOMC sets monetary policy by adjusting the target for the federal funds rate, which generally influences market interest rates and, through the monetary transmission mechanism, the American economy 1.
Interest on reserve balances is the primary tool for moving the federal funds rate within its target range 1. Reserve requirements were set to zero for all banks in March 2020 1.
History
#The First Bank of the United States was chartered in 1791 and its charter expired in 1811 1. A severe financial crisis in 1907 led Congress to enact the Federal Reserve Act 1.
The House passed the act 298–60 and the Senate 43–25 1. It was enacted on December 23, 1913 1. The New York Fed began operating in 1914 15. The Banking Act of 1935 created the Fed's modern structure 1.
Finances and accountability
#Over 90 percent of the Fed's revenue comes from open market operations 1. In 2015 the Reserve Banks earned $100.2 billion and returned $97.7 billion to the Treasury 1.
In 2023 the Fed reported net negative income of $114.3 billion and a deferred asset of $133.3 billion, which it estimated would last until mid-2027 1. Its total assets were $7.139 trillion as of August 2024 1.
The Government Accountability Office may audit some Fed functions, but those audits exclude most monetary policy actions and dealings with foreign governments and central banks 1. The Fed states that its Board of Governors reports to and is directly accountable to Congress 9.
2026 policy
#On September 16, 2026, the FOMC unanimously raised the federal funds target range by 25 basis points to 3.75–4.00 percent 27. Reuters described it as the first increase in three years 5. Reuters also wrote that the decision effectively acknowledged the Trump administration's inability so far to control inflation, which is that outlet's interpretation 2. The FOMC's stated rationale, as given by Warsh, was that the committee was not yet confident that underlying inflation was moving to its objective clearly and at sufficient speed 3.
Warsh said the committee's unanimous vote showed its resolve to achieve price stability on a timelier basis 3. As in June, he did not submit his own projection 23.
In the median projections, PCE inflation was 3.7 percent in 2026, falling to 2.3 percent in 2027, and unemployment held steady at about 4.1 percent 3. The median federal funds rate projection was 4.1 percent at the end of 2026 and the same level in 2027 3. Warsh said inflation risks were to the upside while labor risks were roughly balanced 3. Reuters reported that 16 of 18 policymakers anticipated at least one more quarter-point increase by the end of 2026 2.
Governor Lisa Cook said total inflation was an estimated 3.8 percent in the 12 months to August and core inflation 3.4 percent 4. She attributed part of the pressure to AI-related investment and argued that using monetary policy against sector-specific inflation could be a mistake 4. She also cited higher oil prices and supply chain disruptions associated with the conflict in the Middle East 4. Cook said the labor market was at risk of entering a painful transition in the medium term, while expressing optimism that AI-fueled productivity growth could raise living standards over the long term 4.
Warsh said that most advanced economies were facing price pressures and that their central banks were making their own judgments 3.
Outside views differed on what would follow. PIMCO called the move a recalibration rather than a rate-hike cycle and expected one or two more 25-basis-point increases through the year and into early the next 6. BBVA Research expected the Fed to remain on hold through 2027 7. President Donald Trump criticised the decision and repeated his call for 1 percent rates 5.
Criticism and debate
#The Fed has been criticized for its approach to managing inflation, a perceived lack of transparency and its role in economic downturns 1. Milton Friedman argued that the Fed's refusal to lend to small banks contributed to the Great Depression 1.
Advocates of Austrian economics believe that the shift from the gold standard to fiat currency has led to long-term inflation and financial instability, and some call for the Fed's abolition or greater accountability through audits 1. Ron Paul has said the Fed should be abolished and the gold standard restored 1.
On independence, Wikipedia says the Fed is considered an independent central bank because of its structural insulation from political interference 1. The Fed says its decisions are made independently, while the Board of Governors is directly accountable to Congress 9. The sources cited here do not set out detailed arguments for or against independence, such as political pressure on short-term policy or democratic accountability.
Scripture
Passages quoted from the King James Version. The text is fetched, never written by a model.
A false balance is abomination to the LORD: but a just weight is his delight.
The rich ruleth over the poor, and the borrower is servant to the lender.
Now therefore let Pharaoh look out a man discreet and wise, and set him over the land of Egypt. Let Pharaoh do this, and let him appoint officers over the land, and take up the fifth part of the land of Egypt in the seven plenteous years. And let them gather all the food of those good years that come, and lay up corn under the hand of Pharaoh, and let them keep food in the cities. And that food shall be for store to the land against the seven years of famine, which shall be in the land of Egypt; that the land perish not through the famine.
Thou shalt not have in thy bag divers weights, a great and a small. Thou shalt not have in thine house divers measures, a great and a small. But thou shalt have a perfect and just weight, a perfect and just measure shalt thou have: that thy days may be lengthened in the land which the LORD thy God giveth thee. For all that do such things, and all that do unrighteously, are an abomination unto the LORD thy God.
Sources
- 1.Federal Reserve — Wikipedia (opens in a new tab)
en.wikipedia.orgWikipedia (CC BY-SA 4.0)
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- 7.Fed delivers hike one, signals one (opens in a new tab)
bbvaresearch.com
- 8.The Fed Explained - Who We Are (opens in a new tab)
federalreserve.gov
- 9.The Fed Explained: What the Central Bank Does (opens in a new tab)
federalreserve.gov
- 10.
- 11.Overview: The History of the Federal Reserve (opens in a new tab)
federalreservehistory.org
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- 14.Federal Reserve Board - Home (opens in a new tab)
federalreserve.gov
- 15.History (opens in a new tab)
newyorkfed.org
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Truth Ledger
Every checkable claim in the draft, checked by GPT-6.1 Sol and Grok 4.7. A claim is stated as fact only when both checkers confirm it from the cited sources; a split verdict is published with attribution, and a claim neither can confirm is cut.
Showing 35 claims.
- Verified
The Federal Reserve was created on December 23, 1913, by the Federal Reserve Act.
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Source [1] gives the exact date and act; [8] and [11] corroborate creation in 1913. / Source [1] dates creation to December 23, 1913, via the Federal Reserve Act; [8] and [11] confirm 1913.
- Verified
The Fed's statutory monetary policy objectives are maximum employment, stable prices and moderate long-term interest rates.
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Source [1] explicitly lists all three statutory monetary policy objectives. / [1] lists maximizing employment, stabilizing prices, and moderating long-term interest rates as statutory objectives.
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Stable prices are interpreted as 2 percent inflation per year on average.
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Source [1] explicitly interprets stable prices as inflation averaging 2 percent annually. / [1] explicitly interprets stable prices as 2 percent inflation per year on average; [4] cites the same target.
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The Fed describes five key functions including monetary policy, financial stability, supervision, payments and consumer protection.
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Sources [8] and [9] enumerate these five functions, including consumer protection and community development. / [8] and [9] list monetary policy, financial stability, supervision, payments, and consumer protection among five functions.
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The Board of Governors has seven members appointed by the president and confirmed by the Senate for staggered 14-year terms.
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Source [1] specifies seven governors, presidential appointment, Senate confirmation, and staggered 14-year terms. / [1] states seven governors are presidentially appointed, Senate-confirmed, and serve staggered 14-year terms.
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The Senate confirmed Kevin Warsh as the 17th Fed chair by a 54–45 vote on May 13, 2026.
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Source [1] explicitly provides Warsh’s confirmation date, 54–45 vote, and designation as the 17th chair. / [1] says the Senate confirmed Kevin Warsh 54–45 on May 13, 2026, as the 17th chair.
Cites1
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There are 12 Reserve Banks with 24 branches.
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Source [8] explicitly states there are 12 Reserve Banks and 24 branches. / [8] states there are 12 Reserve Banks and 24 branches.
Cites8
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The Fed says district boundaries were based on 1913 trade regions; Wikipedia says they were based on population distribution.
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The claim accurately contrasts [9]’s trade-region explanation with [1]’s population-distribution explanation. / [9] cites 1913 trade regions; [1] says district size reflected population distribution.
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The FOMC has 12 voting members: seven governors and five Reserve Bank presidents.
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Source [1] specifies seven governors and five Reserve Bank presidents; [8] confirms 12 voting members. / [1] says the FOMC has 12 members: seven governors and five Reserve Bank presidents.
- Verified
Legislation in 1933 and 1935 created the FOMC.
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Source [13] explicitly attributes creation of the FOMC to legislation enacted in 1933 and 1935. / [13] says Congress created the FOMC through legislation in 1933 and 1935.
Cites13
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Member banks hold Reserve Bank stock equal to 3 percent of capital and surplus that cannot be sold or traded.
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Source [1] states the 3 percent capital-and-surplus requirement and prohibits selling or trading the stock. / [1] says required stock equals 3% of capital and surplus and cannot be sold or traded.
Cites1
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About 38 percent of U.S. banks are Fed members.
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Source [1] explicitly says about 38 percent of U.S. banks are members. / [1] states about 38% of U.S. banks are Federal Reserve members.
Cites1
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Interest on reserve balances is the Fed's primary tool for steering the federal funds rate.
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Source [1] identifies interest on reserve balances as the primary tool for moving the federal funds rate within its target range. / [1] calls interest on reserve balances the primary tool for moving the federal funds rate.
Cites1
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Reserve requirements were set to zero in March 2020.
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Source [1] states that reserve requirements were set to zero for all banks in March 2020. / [1] says the reserve ratio was set to zero for all banks in March 2020.
Cites1
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The First Bank of the United States was chartered in 1791 and its charter expired in 1811.
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Source [1] gives the First Bank’s charter year as 1791 and its expiration year as 1811. / [1] says the First Bank was chartered in 1791 and its charter expired in 1811.
Cites1
- Verified
The House passed the Federal Reserve Act 298–60 and the Senate 43–25.
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Source [1] explicitly records the House vote as 298–60 and the Senate vote as 43–25. / [1] records House passage 298–60 and Senate passage 43–25.
Cites1
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The Banking Act of 1935 created the modern structure of the Federal Reserve.
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Source [1] explicitly credits the Banking Act of 1935 with creating the Fed’s modern structure. / [1] says the Banking Act of 1935 created the Fed’s modern structure.
Cites1
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Over 90 percent of Fed revenue comes from open market operations.
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Source [1] states that over 90 percent of Fed revenues come from open market operations, principally securities interest. / [1] says over 90% of Fed revenues come from open market operations.
Cites1
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In 2015 the Reserve Banks earned $100.2 billion and returned $97.7 billion to the Treasury.
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Source [1] explicitly reports $100.2 billion in 2015 profits and $97.7 billion returned to the Treasury. / [1] reports $100.2 billion profit in 2015 and $97.7 billion returned to the Treasury.
Cites1
- Verified
In 2023 the Fed reported net negative income of $114.3 billion and a deferred asset of $133.3 billion expected to last until mid-2027.
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Source [1] supplies both amounts and reports the Fed’s estimate that the deferred asset would last until mid-2027. / [1] reports 2023 net negative income of $114.3 billion and a $133.3 billion deferred asset lasting until mid-2027.
Cites1
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Fed total assets were $7.139 trillion as of August 2024.
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Source [1] explicitly reports total assets of $7.139 trillion as of August 2024. / [1] states total assets were $7.139 trillion as of August 2024.
Cites1
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GAO audits exclude most monetary policy actions and dealings with foreign central banks.
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Source [1] describes GAO audit exclusions covering most monetary policy actions and dealings with foreign governments and central banks. / [1] says GAO audits exclude most monetary-policy actions and dealings with foreign central banks.
Cites1
- Verified
On September 16, 2026, the FOMC unanimously raised the federal funds target range to 3.75–4.00 percent.
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Sources [2] and [7] corroborate the unanimous September 16, 2026 increase to a 3.75–4.00 percent target range. / [2] and [7] report a unanimous September 16, 2026, increase to a 3.75–4.00% range.
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The September 2026 increase was the first in three years.
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Source [5] explicitly describes the increase as the first in three years. / [5] describes the recent hike as the first rate increase in three years.
Cites5
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Median FOMC projections put 2026 PCE inflation at 3.7 percent and the end-2026 federal funds rate at 4.1 percent.
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Source [3] gives median projections of 3.7 percent PCE inflation and a 4.1 percent year-end federal funds rate. / [3] gives median 2026 PCE inflation of 3.7% and an end-2026 funds rate of 4.1%.
Cites3
- Verified
Sixteen of 18 policymakers anticipated at least one more quarter-point hike in 2026.
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Source [2] explicitly states that 16 of 18 policymakers anticipated at least one additional quarter-point hike that year. / [2] says 16 of 18 policymakers anticipated at least one more quarter-point hike by year-end 2026.
Cites2
- Verified
Warsh did not submit his own rate projection in June or September 2026.
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Source [3] says Warsh offered no projection in September, as in June; [2] corroborates the September omission. / [3] says Warsh offered no projection in June or September; [2] likewise reports none in September.
- Verified
Cook said total inflation was an estimated 3.8 percent and core 3.4 percent in the 12 months to August 2026.
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Source [4] reports Cook’s estimated August twelve-month inflation figures: 3.8 percent total and 3.4 percent core. / [4] quotes Cook estimating 3.8% total and 3.4% core inflation over the 12 months into August.
Cites4
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Cook argued that fighting sector-specific AI-related inflation with monetary policy could be a mistake.
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Source [4] explicitly warns that using monetary policy against sector-specific inflation could be a mistake. / [4] says using monetary policy against sector-specific, including AI-related, inflation could be a mistake.
Cites4
- Verified
PIMCO described the September 2026 move as a recalibration rather than a rate-hike cycle and expected one or two more hikes.
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Source [6] characterizes the policy as recalibration and forecasts one or two additional 25-basis-point hikes through early next year. / [6] frames policy as recalibration, not a hike cycle, and expects one or two more hikes.
Cites6
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BBVA Research expected the Fed to hold rates through 2027.
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Source [7] explicitly states BBVA’s expectation that the Fed would then remain on hold through 2027. / [7] says BBVA Research expects the Fed to remain on hold through 2027.
Cites7
- Verified
Trump criticised the September 2026 hike and repeated a call for 1 percent rates.
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Source [5] states that Trump criticized the hike and repeated the 1 percent rate figure. / [5] says Trump criticized the recent hike and repeated his 1% rate call.
Cites5
- Verified
Milton Friedman argued the Fed's refusal to lend to small banks contributed to the Great Depression.
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Source [1] attributes to Friedman the argument that refusing loans to small banks contributed to the Great Depression. / [1] says Friedman argued the Fed’s refusal to lend to small banks contributed to the Depression.
Cites1
- Verified
Ron Paul has called for abolishing the Fed and returning to the gold standard.
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Source [1] explicitly states Ron Paul favors abolishing the Fed and returning to the gold standard. / [1] says Ron Paul believes the Fed should be abolished and the gold standard restored.
Cites1
- Verified
The Fed states its Board reports to and is directly accountable to Congress.
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Source [9] explicitly describes the Board as reporting to and directly accountable to Congress. / [9] states the Board reports to and is directly accountable to Congress.
Cites9
Text is available under the Creative Commons Attribution-ShareAlike 4.0 licence. Written by Claude Opus 5.5 from the sources listed and checked claim by claim by GPT-6.1 Sol and Grok 4.7.