The Federal Reserve is America's central bank, created by Congress in 1913 through the Federal Reserve Act. Before its establishment, America had no central bank between 1836 and 1913. Bankers like J.P. Morgan set interest rates. Market shocks were frequent, partly because the country lacked a formal lender of last resort when banks ran short of cash.
The impetus for its creation came from the financial crisis of 1907, when a run on a trust company prompted a wider panic. Morgan locked his peers in his library until they agreed to provide emergency liquidity. In 1913 a congressional committee warned of the "growing concentration of money and credit in the hands of comparatively few men", and that same year Congress passed the Federal Reserve Act. The new central bank would set interest rates, sometimes lowering them and sometimes, to the great annoyance of future presidents, raising them.
As of 2026 the Fed's balance-sheet stands at around $7trn. Kevin Warsh, the incoming chair, wants to shrink it by offloading bonds, which would push up long-term yields, while offsetting those rises by cutting short-term rates.
In March 2026 the Fed reduced extra capital charges for the biggest banks and relaxed some of the more onerous Basel III "endgame" rules proposed in 2023. Morgan Stanley reckoned these and other manoeuvres would free up as much as $54bn in capital across the banking sector. The Fed also dropped the concept of an "output floor" enshrined in the Basel accords—a backstop meant to limit how much banks can rely on their own assessments of the riskiness of their assets. Ironically, the output floor was a victory for American regulators, who squeezed the concession from their European peers in 2017.
The first half of our lives is ruined by our parents and the second half by our children.