How has the role of the federal reserve system changed over time?

I think it is appropriate to begin with a brief history lesson. In October 1907, the US economy was seized by panic. It began with the ominous failure of New York City's Knickerbocker Trust Company. The collapse of that institution was made all the more sensational because the president of Knickerbocker committed suicide a month later.

Leadership and courage found their form six years later. On December 23, 1913, President Woodrow Wilson signed the Federal Reserve Act, which created the Federal Reserve System.

To be more concrete, the Federal Reserve Act established the Federal Reserve Board in Washington, DC, with seven governors appointed by the president and confirmed by the Senate. And it divided the country into regional districts with Federal Reserve Banks headquartered in each. The president of each of the 12 Reserve Banks is appointed by a board of directors consisting of private citizens from the district.  

The Federal Reserve has a number of responsibilities, many of which you may not be familiar with. For example, the Federal Reserve serves as the lender of last resort. Federal Reserve Banks can make loans to address financial panics, and we certainly made use of that power during the financial crisis in 2008. We supervise the banking system. We work to ensure an accessible, efficient, and secure US payments system, and we serve as the federal government's bank. Our community development efforts support the economic growth of low- and moderate-income neighborhoods across the country.

But a lot has changed over the past 100 years. Clearly, as a woman, I wouldn't have been leading a Federal Reserve Bank in 1913, nor would a woman have been the Federal Reserve Board's chair, as is now the case with Janet Yellen.

To begin with, monetary policy as we know it today didn't exist in 1913. At that time, the US economy operated under the gold standard. There was no such thing as buying and selling financial assets to influence interest rates. But the gold standard proved too inflexible in times of stress like the Great Depression.

It wasn't really until the 1930s that the Federal Reserve began conducting "monetary policy." During that decade, Congress established the Federal Open Market Committee, or FOMC, as the nation's monetary policy body. The Committee consists of the seven Federal Reserve governors and five of the 12 Reserve Bank presidents who vote on a rotating basis.

The Federal Reserve's objectives have been refined and updated over the decades as well.

Then in 1978, Congress gave the FOMC an official mandate. T. It directed the Federal Reserve to "promote full employment" and "reasonable price stability." Today we call those objectives the Federal Reserve's dual mandate.

So you can see that the Federal Reserve has continued to adapt over the past 100 years. However, some of the most significant changes in the way we conduct monetary policy have occurred very recently in the aftermath of the financial crisis, severe economic recession, and ensuing slow recovery.

When the economy teetered on the brink of another depression, we lowered the federal funds rate to essentially zero. It couldn't go any lower than that, but the economy was still in a recession. So we had to turn to unconventional tools. The most well-known of these tools is what we call large-scale asset purchases, or what you may know as Quantitative Easing, or QE.

The other major unconventional monetary policy tool we have turned to is what we call forward guidance. I know the term may sound strange, but really all it means is that we are giving the public more information on how monetary policy is likely to evolve.

The Federal Reserve System has changed through monetary policy