Central Bank

Every major economy has one. The U.S. has the Federal Reserve, the eurozone has the European Central Bank, the UK has the Bank of England, and so on. Central banks are typically granted a degree of independence from elected governments so that monetary policy decisions — setting interest rates, controlling the amount of money in circulation — are insulated from short-term political pressure.

Most central banks operate under an explicit mandate — a legal instruction about what they must achieve. The U.S. Federal Reserve has a dual mandate: keep inflation low and stable, and maximize employment. The European Central Bank's primary mandate is price stability alone. These mandates explain why two central banks can respond very differently to the same global economic shock.

Central banks move markets because they control the base interest rate — the floor for borrowing costs across the entire economy. A rate decision ripples through bonds, currencies, stocks, and commodities. They also act as lender of last resort, providing emergency funding to banks during crises, as seen dramatically in 2008. You can track central bank decisions worldwide on the economic calendar, and learn how their signals translate into market moves in the guide to central banks and currencies.