Updated March 24, 2026

Federal Reserve (Fed) chair Jerome Powell’s term will end in May 2026. As the Senate considers President Trump’s nominee to replace him, questions are naturally arising about the Federal Reserve’s role, how it functions, and its effect on the economy, prices, and the workforce.

The Federal Reserve raised interest rates and reduced its balance sheet to slow prices from creeping upward after the pandemic’s economic disruptions and the subsequent surge in inflation.

More recently, the Fed has begun changing policy as labor market conditions softens and inflation slows. The Fed lowered the federal funds target rate three times in 2025. It also began expanding its balance sheet after a reduction period of more than two years.

This brief summarizes the Federal Reserve’s role in the economy, the tools it uses to carry out monetary policy, and recent trends in inflation and employment that shape those policy decisions.