The Federal Reserve Act was a groundbreaking piece of legislation signed into law by President Woodrow Wilson after extensive debates and alterations over a period of several years. The Act was born from the urgent need for a stable banking system in the United States, particularly prompted by the severe financial panic of 1907 that exposed the vulnerabilities of the American financial structure. With calls for reform gaining traction, Wilson and his advisors sought to create a balanced central banking system that could adapt to the economic fluctuations of the time and avoid future crises.

By establishing the Federal Reserve System, the Act created a network of 12 regional Federal Reserve Banks that served as the central bank for the nation. These institutions were empowered to issue federal reserve notes, which became the nation's currency, along with the authority to manage credit and monetary policy effectively. The structure also included a Board of Governors appointed by the President, representing a centralized authority that would oversee the operations of the Federal Reserve Banks and guide economic policy based on national conditions.

The impact of the Federal Reserve Act was immediate and profound. It aimed to provide the United States with a flexible currency and to ensure that the economy could respond effectively to disruptions. The establishment of the Federal Reserve System signified a significant shift in federal economic policy and represented a move towards a more managed approach to the economy, influencing monetary policy and economic stability for decades to come, including during the Great Depression and beyond.