Since 1999, when the first version of this Q&A on monetary policy appeared, several dramatic developments have had an impact on the U.S. economy. On the negative side are the bursting stock market bubble, the recession, the terrorist attacks of September 11, 2001, and, more recently, the emergence of the risk of deflation. On the positive side have been continued high productivity growth and the resilience of the economy. In light of these developments and their implications for monetary policy, it seemed appropriate to update and expand this Q&A on the Federal Reserve's tasks and how it carries them out. The revised text will appear in a pamphlet soon, and we present it here in the FRBSF Economic Letter in four consecutive issues: (1) "How is the Federal Reserve structured?" and "What are the tools of U.S. monetary policy?" (2) "What are the goals of U.S. monetary policy?" (3) "How does monetary policy affect the U.S. economy?" and (4) "How does the Fed decide the appropriate setting for the policy instrument?"