The Federal Reserve: Myths and Conspiracies — Are They Real or Not?
The Federal Reserve is the central banking system of the United States. But there are many conspiracies and myths about the Fed. Here’s the truth.
March 4, 2022
The Federal Reserve is America’s central bank.
Its goals are ambitious: To maintain full employment and keep prices stable through monetary policy tools. It’s also responsible for distributing printed money, regulating some aspects of commercial banking and much more.
The Fed is complicated, and there’s a lot of misunderstanding about how it all works. This has led to some Federal Reserve myths and conspiracy theories — all of which are completely false.
This article is setting the record straight, exploring some of the most common Federal Reserve myths circulating today.
Myth: The Fed has no oversight or auditing
There’s a conspiracy theory relating to the fact that the Fed is not audited or supervised. You may have seen messages calling to “audit the Fed.” The Fed is audited frequently and is supervised by Congress.
The Fed — and each of its Reserve Banks — are audited frequently and thoroughly. This includes both internal and external audits. More than 450,000 hours are dedicated annually to audits.
The Federal Reserve is also periodically audited by the U.S. Government Accountability Office (GAO). The Fed is overseen by members of Congress and is accountable to the American people.
The Fed also posts reserve balances and audited financial statements online for the public. Federal Reserve meeting minutes are also publicly available.
Myth: The Federal Reserve is privately owned or controlled
There’s a misconception that the Fed is privately owned or controlled by Wall Street financial elites.
Who owns the federal reserve?
Nobody directly “owns” the Federal Reserve. And nobody influences it externally — the Fed is an independent, nonpartisan branch of the U.S. Government.
The Federal Reserve is an agency of the United States Federal Government, and it reports directly to Congress, where it’s held accountable by representatives of the American people.
Like the IRS, the military, or any other federal agency, the Federal Reserve is “owned” by the country itself and the American people.
The 12 Reserve Banks operate similarly to private banks in some regards. Each branch is incorporated separately and has its own board of directors. This leads to some confusion in thinking that the Reserve Banks are private entities.
The Reserve Banks are part of the Federal Reserve System. They do create revenue through their activities — but any profits (after operating expenses) are required by law to be transferred back to the U.S. Treasury.
Myth: The Fed prints money
The term “printing money” can refer to two different things:
Literally printing currency bills or minting coins
Increasing the amount of money that is available through monetary policy activities
The Federal Reserve doesn’t print physical currency or mint physical coins.
Coins are made in the U.S. Mint, and the U.S. Treasury’s Bureau of Engraving and Printing makes paper currency.
However, the Federal Reserve does distribute cash once those other agencies have created it. One key function of the 12 Reserve banks is to distribute physical currency to standard banks.
The Fed can control the amount of money that is available to the U.S. financial system, as well. It does this by buying or selling U.S. Treasuries on the open market and crediting money to reserve funds at the Federal Reserve bank branches.
Most of the money in the economy isn’t physical cash — it’s credit balances at banking institutions. It’s this type of money that the Fed can actually influence and “create.”
In this way, the Fed can “print money,” so to speak. The Fed can add more money to the funds circulating in the economy, making banks more willing to issue loans. This is a key monetary policy tool of the Federal Reserve.
Myth: The Fed is political
The Federal Reserve is a nonpartisan branch of government. This means that the Fed doesn’t align itself with Democrats, Republicans or any other political party.
Elected officials do have a say in who gets appointed to run the Federal Reserve. The president can appoint the Fed chair and other board members, and Congress must then confirm them.
But once appointed, Fed officials don’t answer to the White House or political pressure. They operate independently.
Myth: The Federal Reserve is funded by taxpayer money
Many federal government agencies are funded by the taxes we all pay to the government. But the Federal Reserve is not taxpayer-funded.
Instead, the Federal Reserve generates income from interest earned on assets it purchases and interest generated from loans to depository institutions.
The Fed is self-funded and receives no money from Congress or taxpayers. The revenue generated by the Reserve first goes to pay for its expenses.
Any “profit” left over after paying for expenses is transferred back to the U.S. Treasury, adding to the assets of the U.S. Federal Government.
These Federal Reserve myths are exactly that — myths.
The Fed is simply the Central Bank of the United States. It’s a self-funded, independent agency monitored and audited by Congress.
The Fed exists to stabilize the financial system, regulate banks, provide financial services to the US government and conduct monetary policy. The overall goals of monetary policy decisions at the Fed are to pursue full employment and stable prices — both of which benefit everyday Americans.
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