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The Federal Reserve isn’t a part of the federal government at all. It’s quasi-governmental, which means it performs functions related to managing the U.S. economy in cooperation with the government but isn’t actually under the direct control of any government body. Think of the Federal Reserve as the bank that other banks go to when they need banking services.

The Fed accepts deposits, makes loans to member banks, and facilitates loans between banks using the deposits. It also determines interest rates for certain key loans and the bank reserve requirement, which is the proportion of total deposits that commercial banks must keep available as liquid cash. Bank reserve requirements are used to manage bank liquidity for customer withdrawals and to manage the supply of money in the nation as a whole. The Fed generates funds by charging interest and by charging member banks a membership fee.

The controversy and confusion comes into play as the Federal Reserve receives money from the U.S. Treasury and then lends it out to member banks. The setting of interest rates is also one of the responsibilities of the Federal Reserve.