The Federal Reserve Bank (FED) is a system of 12 regional Reserve Banks along with a Board of Governors, in Washington D.C. Congress set the Federal Reserve up as an independent committee in 1913 to service as the central bank of the United States. Their main role is to set monetary policies that will provide a stable currency for the United States. It does this by controlling our financial institutions and money supply. By being independent and decentralized it removes the ability of any one group of having too much control.
The FED is the bank for our Government and all US banks. By controlling the money supply they are able to influence our economy. They are the system that decides how much money is in the economy, which can either cause our economy to expand or contract. If they want to increase money supplies they buy securities and to decrease the money supply they sell securities. .
When inflation is high, everything costs more, so money is worth less. Having too much currency in the market normally causes this. This has a huge impact on business long term planning and growth. Both businesses and individuals are less likely to spend on things like building, houses or saving because of the fear of their investment becoming worth less. .
High inflation leads to higher prices. Higher prices cause less purchasing power, which means demand is down. This leads to a surplus of goods in the economy, which causes high unemployment because production has to decrease to compensate. With less production there are fewer jobs available. This can push our economy into a recession. The U.S. really hasn't seen much inflation since the mid 1980's. That is when government began paying more attention to inflation. It took till the early 1990's for the nation to experiencing a combination of strong growth, low unemployment, and slow inflation. .
Some unforeseen misshape in our business sector over the last 2 years have caused our economy to go soft.