The U.S. Congress established three core objectives for monetary policy in the Federal Reserve Act of 1913: maximum employment, stable prices, and moderate long-term interest rates.
But in addition to acting as steward of the economy, the Fed's role has expanded over the years.
The Great Recession, a need for corporate bailouts, and concerns over the Fed's secrecy brought about recent changes to its institutional identity.
Certainly we've had a renewed focus on the Fed's responsibility as a regulator.
People wanted to see - needed to see - a Fed that operates no longer as a creature of the banks, but as a watchdog instead.
Emblematically, the Dodd-Frank Wall Street Reform and Consumer Protection Act were signed into law in July 2010.
With it, Dodd-Frank brought the most substantial changes to financial regulation since the aftermath of the Great Depression. Particularly, a greater breadth of regulatory power was given to the Fed.
Photographyblog.com The Fed has become the King of the Jungle.
Under Dodd-Frank, the Consumer Financial Protection Bureau (CFPB), which regulates financial products, is housed within the Fed rather than as a stand-alone agency.
The Fed became head honcho of investment bank supervision, gained a broadened ability to oversee financial institutions deemed "systemically important" to the health of the economy, and now plays a major role in governing big banks that fail.
More specifically, under Dodd-Frank a 10-member Financial Stability Oversight Council was created to oversee commercial lenders, insurance companies...literally any financial company it deems critical to our financial system.
Also, the Fed was tasked with implementing requirements on the level of reserves our banks must keep on hand, in addition to other provisions that stem from the international Basel III agreement.
Now, whether or not the Fed has successfully executed the regulatory powers it inherited from Dodd-Frank is certainly a debatable issue.
What isn't debatable is that the Fed's expanded authority exists, and the next Fed chief will be the most powerful of all time.
Undoubtedly, President Obama has that in mind as he seeks a replacement for Ben Bernanke, who will leave his position as Fed chairman when his term ends on January 31, 2014.
Here's who has caught Obama's eye to replace Bernanke, and what the candidate will likely do with the most powerful Federal Reserve of all time...
#1: Janet Yellen
Janet Yellen currently serves as Fed vice chairwoman under Bernanke.
In a letter urging Obama to choose Yellen as the next Fed chief, Yellen supporters stated that the Fed needs a leader "with a solid record as a bank regulator." They lauded Yellen's "independence, intellectual rigor, and willingness to challenge conventional wisdom regarding deregulation."
Critics have labeled Yellen as too much of an academic - someone who would treat the American economy more like a laboratory experiment while lacking a real understanding of how policy will affect the average American.
That said, Yellen has been ranked as one of the world's leading economists for her ability to provide accurate forecasts, which would lend stability for key decision makers.
#2: Larry Summers
Larry Summers was one of the biggest enablers of the 2008 financial crisis. The man is a known friend of Wall Street and a bank apologist extraordinaire.
As a matter of fact, Money Morning's Capital Wave Strategist Shah Gilani refers to Summers as "Lawrence of Enablers" - a foreboding nickname for a new, more powerful Fed chief, to say the least.
Summers has done more than his fair share of bumbling in non-financial venues.
For instance, while serving a five-year stint as president of Harvard University, Summers said girls are not as smart as boys, and that African American Studies department head Cornel West was an embarrassment to Harvard because he made a "rap" album.
Later, Summers dismissed his comments by saying that "hip-hop scared him; it's a stereotypical reaction."
But that's just a drop in the pond. It is Summers' financial practices that should really concern you.
Get all the dirt on Larry Summers' escapades that led the U.S. economy into perilous conditions in Shah Gilani's latest "Exclusive: Obama Tells Money Morning Why He Just Loves Larry Summers"...
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