Facade of the Marriner S. Eccles building of the United States Federal Reserve in Washington, D.C.
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The Federal Reserve’s work can often be mind-bendingly complex. It’s no wonder the institution is shrouded in so much mystery.

Whether it’s the belief that the Fed prints money, or the idea that having a central bank is unconstitutional, you’ve probably encountered some wild claims when trying to learn about what the U.S. central bank actually does. For the most part, though, these statements are just untrue – but they’re perpetuated by the complicated nature of the job.

The Federal Reserve was created by Congress in 1913 to maintain economic and financial stability throughout the country. The Fed’s rate-setting arm, the Federal Open Market Committee (FOMC), does this most notably by raising or lowering interest rates. After the 2008 financial crisis, the Fed also took on new regulatory roles, acting as a watchdog over the world’s largest financial institutions.

But lots of other assertions sneak in. Here are the eight most common misconceptions about what the U.S. central bank does, according to experts, and an explanation for why they’re false

What are the biggest misconceptions about the Federal Reserve?

  1. The Fed is to blame for mortgage and student loan rates.
  2. The Fed acts alone, with no oversight or supervision.
  3. The Fed prints money.
  4. The Fed is funded – or gets rich – through taxpayer money.
  5. The Fed acts with Wall Street in mind.
  6. The Fed is unconstitutional.
  7. The Fed can prevent income inequality.
  8. The Fed can eliminate the business cycle.

Misconception No. 1: The Fed is to blame for mortgage and student loan rates

When you first think about an interest rate, you probably think about what you’re paying on your mortgage. You probably cringe at the idea of the Fed hiking rates, if you have a variable rate or are thinking about purchasing a home in the near future.

These rates, however, aren’t really tied to the Fed’s policy moves. Case in point: The Fed in December hiked rates for the fourth time in 2018, but mortgage rates edged lower. These long-term home loans are most notably dictated by market-driven factors, such as the 10-year Treasury yield.

But this misconception may have some truth to it. During the financial crisis, the Fed slashed its fed funds rate to near-zero, and it still wasn’t enough to stimulate the economy. As a result, the U.S. central bank wanted to push down long-term rates on products such as mortgages. Fed Chairman Ben Bernanke devised a plan to start buying Treasuries and mortgage-backed securities to make that happen, an initiative commonly known as “quantitative easing.”

[READ: Everything you need to know about the Federal Reserve’s balance sheet – and how it could impact you]

A Fed rate hike also probably seems like it would be a punch to the gut for the millions of Americans carrying student loan debt. But interest rates aren’t tied to the federal funds rate, either.

Those two rates would’ve been more closely tied, if Sen. Elizabeth Warren (D-Massachusetts) saw her legislation come to fruition. In 2013, Warren floated a bill titled the “Bank on Student Loans Fairness Act.” The legislation was designed to mandate that Congress set the student loan interest rate to be the same as the Fed’s discount window interest rate, which is the rate that the Fed charges to banks who take out credit to meet the U.S. central bank’s overnight reserve requirement. It’s typically been about one percentage point higher than the federal funds rate, but it fluctuates depending on economic conditions.

“If Congress lets student loan interest rates double this summer, our kids will pay rates nine times higher than the big banks on their government loans,” Warren said in an accompanying statement. “That’s wrong.”

But that legislation never became a law. Interest rates on student loans are mandated by Congress, specifically the Department of Education. And if you take out a student loan from a private lender, that’s most likely determined by your credit score.

If the Fed did decide it wanted to have a hand in controlling student loan interest rates, it would require an initiative similar to quantitative easing, says Andrew Szczurowski, CFA, portfolio manager at Eaton Vance.

“If they thought the trillion-dollar student loan debt was a problem for the economy, they could buy student loan debt to get the prices down,” Szczurowski says. “The Fed doesn’t control that rate. At the end of the day, it’s unfortunately not the Fed’s fault.”

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Misconception No. 2: The Fed acts alone, with no oversight or supervision

Search for “Federal Reserve” on social media, and you’ll probably encounter this phrase: “Audit the Fed!” It most likely stems from the fear (or conspiracy theory, really) that the U.S. central bank controls the government – and the world.

But in reality, the Fed is audited, and it has an immense amount of oversight, even though it is technically independent from Congress. In other words, just because officials can choose to raise or lower interest rates as they see fit, doesn’t mean they don’t have to follow the rules.

When it comes to the regional Fed reserve banks, each are audited annually by an independent public accounting firm selected by the board of governors. In 2018, that was Klynveld Peat Marwick Goerdeler, or KPMG.

As required by the board of governors, the firm has to remain independent from the Fed in all matters. It can’t advise any of the reserve banks or have any affiliation with the Fed that could impair its impartiality, according to the board of governors.

The board of governors is also audited, but the Office of Inspector General finds the entity for it. The selected firm puts together a report about “compliance and on internal control over financial reporting in accordance with government auditing standards,” according to the Fed. In addition, the Office of Inspector General also conducts its own audits, reviews and investigations relating to the board’s activities and operations, including the Fed’s security and supervision duties that it took on in the aftermath of the financial crisis.

The resulting reports are all published on the board of governors’ website annually.

In addition, every Treasury security that the Fed owns is also made available, down to every painstaking detail, from its maturity date to its CUSIP, which is essentially a serial number for every bond.

The Humphrey-Hawkins Full Employment Act of 1978 also requires the Fed to report semi-annually to both the House of Representatives and Senate on economic and monetary policy developments. Along those same lines, Fed officials travel the country in the interim between meetings, delivering speeches and public remarks to help everyday people and markets understand what they’re doing and why they’re doing it.

“There’s this common idea that the Fed is this secret temple,” says W. Michael Cox, economics professor at Southern Methodist University who formerly served as the chief economist at the Dallas Fed. “But the Fed was created by Congress, and it can be uncreated by Congress.”

But some members of Congress would like to see more transparency. Sen. Rand Paul (R-Kentucky) in January reintroduced the “Federal Reserve Transparency Act,” colloquially referred to as the “Audit the Fed” bill. The legislation was previously floated by his father, Ron Paul, a former Republican representative from Texas.

The bill calls for the nonpartisan, independent Government Accountability Office (GAO) to run additional audits of the Fed, including “its transactions for or with foreign central banks, governments of foreign countries, or non-private international financing organizations,” the bill states.

The bill would also offer Congress direct insight into the Fed’s “deliberations, decisions or actions on monetary policy matters,” a process typically separate from congressional oversight to ensure that interest rate decisions are made free from political pressure. Those policy matters include decisions related to the Fed’s discount window operations, reserves of member banks, securities credits and interest paid on deposits.

“It’s time for Congress to respond by passing this bill to hold the secretive Federal Reserve, the enabler of Washington’s spending addiction, accountable to the people’s representatives,” Sen. Paul said in a statement provided by his press office. “Audit the Fed is a grassroots-driven movement that has rattled the establishment and proven time and again the difference concerned Americans can make against the odds.”

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Misconception No. 3: The Fed prints money

It seems counterintuitive that the U.S. central bank isn’t responsible for printing money. However, that’s the truth, and the responsibility falls under the domain of the U.S. Treasury Department.

Coins come from the U.S. Mint, and paper currency is produced at the Bureau of Engraving and Printing. The Treasury overseas both entities.

But the Fed does have a hand in circulating that currency once it’s printed. First, it distributes that money to banks. Second, it can choose to take bills directly out of circulation when they appear to be too old or worn out – or even counterfeit, according to the St. Louis Fed.

The Fed also directly manipulates the amount of money in circulation through its open-market operations. Here, the Fed can add money – or take money away – by buying or selling U.S. Treasury securities and other financial instruments. The Fed pays for those securities by crediting funds to the reserves that banks hold in accounts at the Fed. Consequently, that influences “how much banks are willing to lend, which in turn determines the volume of bank deposits held by the public,” the St. Louis Fed reports.

The Fed can also serve as a “lender of last resort,” providing credit to banks or other financial firms experiencing financial distress and teetering on the brink of collapse. In a sense, those loans have a lever on the money supply as well, giving banks the ability to offer more funds to consumers.

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Misconception No. 4: The Fed is funded – or gets rich – through taxpayer money

You may think that a portion of your taxes go toward funding the Fed’s operations – but that’s not the case. The Fed doesn’t receive any funding through the congressional budgetary process, according to the board of governors, an intentional part of its design that helps maintain its independence from Congress.

Instead of taxes, the Fed instead draws its income primarily from the interest it receives on government securities and Treasuries that it purchases through those open-market operations.

Other sources include interest on its investments in foreign currencies, interest on loans provided to depository institutions, and fees received in exchange for services provided to depository institutions – such as check clearing, transferring of funds and automated clearinghouse operations.

But after paying off its expenses, the Fed doesn’t keep its profits. The U.S. central bank returns the entirety of its bottom line over to the U.S. Treasury.

“The Fed doesn’t get rich off of the interest it earns on all of those government securities,” Cox says. “The Fed doesn’t print money and spend it and buy things for itself.”

As for salaries, Congress is responsible for setting those for the Fed’s board members. Chair Jerome Powell made $203,500 in 2019, according to the Fed, while all other board members made $183,100.

The board reviews the salaries for presidents of each reserve bank, who typically make more than the board of governors and the chair. Officials set those salary ranges based on the cost of labor in each head-office city. Those salaries can also increase, if approved by each regional Fed bank’s board of directors.

For example, the president of the San Francisco Fed – now Mary Daly – makes $476,100, while St. Louis Fed President James Bullard makes $369,900, according to the Fed’s most recent annual report published in 2017.

Still, that total pales in comparison to what “people with that level of training and expertise would make on Wall Street,” Cox says.

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Misconception No. 5: The Fed acts with Wall Street in mind

But that hasn’t stopped people from believing the Fed acts with Wall Street’s interests in mind.

It’s a fear that many have had about the U.S. central bank, especially since the big bank bailouts during the financial crisis. It might also have to do with the New York Fed president’s permanent voting position on the FOMC. Many officials affiliated with the regional reserve bank come from New York’s prominent financial center, Cox says.

But the FOMC was designed to have other voices – not just of those from major urban areas.

Presidents of five other regional Fed banks get to cast their vote, in addition to the president of the New York Fed and all members of the Board of Governors.

Meanwhile, all 12 regional Fed bank presidents attend each FOMC meeting, even if they don’t have a vote. Minneapolis Fed President Neel Kashkari, for example, said in a Friday research note that he advocated for 0.50 percentage point cut during the Fed’s June 18-19 meeting, even though he didn’t have a vote.

After all, the U.S. economy is diverse and different in every area of the country. The diversified views are intended to reflect that.

“At the end of the day, not every part of the country grows at the same speed. The coasts have been doing very well, but not the heartland of the country,” Szczurowski says. “It’s very tough, but at the end of the day, there’s no kind of perfect system. This is just the one we’ve developed.”

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Misconception No. 6: The Fed is unconstitutional

The Fed is arguably the most powerful central bank in the world. Its decisions on interest rates impact all of the U.S., as well as other countries around the globe.

However, its leading officials are not elected, nor are they considered directly part of the government. The constitution doesn’t even mention the need for a “Federal Reserve System.” This makes some people a bit suspicious about the Fed in general, and could be a reason why so many Americans are skeptical about their purpose.

But the Fed was created nearly 100 years ago under President Woodrow Wilson with the passage of the Federal Reserve Act. Wilson wanted to form a U.S. central bank charged with maintaining economic stability in response to a banking panic just six years earlier. (At the time, private banks and business owners were relied upon to maintain economic stability, flooding the system with capital and cash to keep the financial system afloat.)

Before the Federal Reserve, there were two central banks in the U.S. The First Bank of the United States lasted from 1791 until 1811, and the Second Bank of the United States existed between 1816-1841.

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Misconception No. 7: The Fed can prevent income inequality

The Fed has a dual mandate: stable prices and maximum employment. Historically, Fed officials have based their models on the Phillips curve, which asserts that those two goals have an inverse relationship. When unemployment goes down, prices are (typically) thought to go up.

That hasn’t been the case for the current expansion. Though the unemployment rate is at a near half-century low of 3.6 percent, inflation has remained tame, falling below the Fed’s 2 percent target for much of the current expansion. Currently, it sits at about 1.6 percent, judging from the U.S. central bankers’ preferred core personal consumption expenditures price index (PCE), according to the Department of Commerce.

[READ: Here’s why low inflation has the Fed concerned right now]

Feeding into that picture of low inflation could be a backdrop of tepid wage gains, which breached 3 percent for the first time in October 2018, nine years into the expansion. Typically, that threshold is met much earlier during periods of low unemployment.

At the same time, the share of income going to laborers has lagged from its previous expansion levels, with most of the gains concentrated among top-tier earners.

Many people blame the Fed for this issue of income inequality, with critics most commonly saying the Fed raised interest rates without clear evidence of inflation, suppressing further wage gains. But the Fed is not entirely to blame, says Greg McBride, CFA, Bankrate’s chief financial analyst.

Income inequality “is not in their purview,” McBride says. “We have a skills shortage, we have 11 million high school dropouts in our labor force. Those are the factors that, if we fix those, we take a big step toward eliminating income inequality. The Fed isn’t going to fix those.”

In public comments, Powell has stressed that wage inflation is outside of the Fed’s dual mandate. But many Fed officials – including Kashkari – are starting to admit that officials should take wage growth and income inequality into account when setting policy.

Kashkari in a May 12 speech brought up the economic consequences of income inequality, saying the Fed should look at income distribution when determining if they’ve achieved their goal of full employment. In other words, if wages don’t appear to be picking up, the labor market must still have more slack, he asserts. Other Fed watchers say the Fed could take prominent steps in the right direction by implementing a real-time payment system.

But even then, it would take a sum of the parts to address the issue entirely. “It’s more of a structural issue,” McBride says.

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Misconception No. 8: The Fed can eliminate the business cycle

Starting in July, the U.S. economic expansion will become the longest on record – stretching 10 years and one month. But the longer the expansion continues, the more people seem to be focusing on what’s going to cause its untimely end.

Typically, the Fed decides to raise or lower interest rates when it’s trying to sustain or stimulate the economy. Powell told journalists at the Fed’s June 18 post-meeting press conference that he and his colleagues have one overarching goal: “to sustain the economic expansion.”

But even these trained officials can’t see the future. Downturns, after all, are inevitable – no matter how good the Fed is at its job.

“If they do their job right, they can minimize the impact of a recession and minimize the length and depth of a recession,” McBride says. “But they can’t prevent a recession.”

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