What is the primary function of the Federal Reserve in the U.S. economy?

The primary function of the Federal Reserve, often referred to as the Fed, is to serve as the central bank of the United States, with a key role in managing the nation's monetary policy. This involves regulating the money supply and interest rates to promote maximum employment, stable prices, and moderate long-term interest rates. By adjusting key interest rates, the Federal Reserve influences economic activity—its actions can stimulate the economy during downturns or cool it down during periods of excessive growth.

In addition to managing monetary policy, the Federal Reserve also supervises and regulates banks to ensure the stability and safety of the banking system. It acts as a lender of last resort to financial institutions in distress, providing liquidity when needed to maintain confidence in the financial system.

Other choices presented do not encompass the full scope of the Federal Reserve's roles. For instance, while controlling inflation is an important aspect of its function, it is only one part of a broader mandate. Likewise, the Fed does not primarily focus on providing loans to state governments or directly regulating the stock market; those areas are typically managed by different governmental entities or regulatory bodies. The central bank's comprehensive approach to monetary policy is essential for maintaining the overall health of the economy.