The Federal Reserve Act was passed by Congress, and signed into law by President Woodrow Wilson in 1913. This law re-established the central banking system in the United States, and the purpose was to create a more sound banking system with a way to regulate currency and effectively supervise the banking industry in the U.S.

The Panic of 1907 was a catalyst for much-needed American bank reform ever since the dark days of President Andrew Jackson's bank war of 1832 with Nicholas Biddle, president of the Second Bank of the United States. Jackson's hatred of the central banking system was rooted in the fact that much of the stock of the Second Bank had been purchased by foreigners, and Jackson felt the bank favored the elite at the expense of the many.

Jackson took the strict construction position regarding the U.S. Constitution, and argued the Second Bank was an overextension of federal power. Jackson's order to the Treasury Secretary to remove federal funds from the Second Bank, and deposit the funds into the state banks, resulted in Biddle's tight money policy. Business bankruptcies, as well as bank failures, ensued resulting in factory closures, and worker layoffs.

The Federal Reserve system is governed by a presidentially appointed Federal Reserve Board, and 12 regional Federal Reserve Banks regulate the supply of currency. An amendment to a 1933 Banking Act established an open market committee to conduct open market operations, which is, put simply, the Fed's buying or selling government bonds in an open market. These open market operations are the procedures by which the Fed implements monetary policy. Open market operations are essentially how the Fed expands or restricts the supply of money. And the short-term interest rates are manipulated as a result of open market operations, as well.

Consider that according to the U.S. Constitution in Article I, Section 8, Clause 5, Congress has a power to coin money, and by way of the Federal Reserve Act of 1913, Congress has effectively delegated that power to the Fed. Thus, Congress does not exercise that power as defined in Clause 5, but rather it is a centralized banking system through many private banks that are involved in the regulation of our currency through interest-bearing debt.

Recently, President Donald Trump met with Fed Chairman Jerome Powell, and Powell has stood his ground against Trump's insistence that the Fed's benchmark rates should be lower or even in the minus column, as in the case of the European Union and Japan.

Lest we forget, we, as a nation, have already seen three benchmark short-term rate cuts this year. And enough Fed voters saw the necessity to cut rates in October because of slower global economic growth and unpredictability of world trade.

One aspect of the Fed is that it does function as an independent agency, yet Trump is very open about pushing rate cuts, and if the economy is on such a sound footing as of late, then why is Trump demanding even more rate cuts?

Investors certainly feel the Fed is through for the year regarding any monetary policy changes, and the Fed is in a "wait-and-see" mode. As Powell has said, "Monetary policy is in a good place, and policy is not on a pre-set course."

Brent Been is a Tahlequah educator with a special emphasis on civics and history.

Recommended for you