The Evolving Role of the Federal Reserve

Abstract

In the years prior to the financial crisis of 2008-09, the Federal Reserve and other central banks emphasized their macroeconomic policy role almost to the exclusion of other concerns. The crisis experience has led to profound changes in the way we view central banking. Central banking in the 21st century will give much greater emphasis to the original lending role and, as a consequence, the regulatory and supervisory functions of the lender of last resort. In addition, central banks will be much more concerned with systemic risk and a new role, macroprudential regulation, is emerging. This paper describes these developments with reference to the American central bank.