What is the role of the Federal Reserve?

The Federal Reserve plays a crucial role in the U.S. economy primarily through conducting monetary policy and regulating banks. By managing monetary policy, the Federal Reserve influences interest rates, controls the money supply, and aims to achieve maximum employment, stable prices, and moderate long-term interest rates. This is done through tools such as open market operations, the discount rate, and reserve requirements.

Additionally, the Federal Reserve has the responsibility of supervising and regulating banks to ensure they operate safely and soundly, maintaining the stability of the financial system. This includes setting standards for bank capital, monitoring risks, and providing oversight to prevent bank failures and protect depositors.

The other options involve functions that are outside the primary responsibilities of the Federal Reserve. For instance, issuing currency is only one aspect of its broader role in monetary policy, and while the Fed does contribute to economic conditions that can affect prices, it does not set prices directly. Fiscal policy, which involves government spending and taxation, is managed by the government, not the Federal Reserve. Lastly, managing international trade relations falls under the purview of the federal government and agencies focused on trade rather than the central bank.