Final answer:
The function that the Federal Reserve does not perform is setting fiscal policy. Fiscal policy is managed by the government's executive and legislative branches, while the Federal Reserve handles monetary policy, regulates banks, and maintains the stability of the financial system.
Step-by-step explanation:
The role that is not a function of the Federal Reserve System is setting fiscal policy. The Federal Reserve, often referred to as "the Fed," has several key functions. These include regulating the money supply, providing loans to financial institutions (not individuals), and ensuring the smooth operation of the payment system, which includes clearing checks. However, setting fiscal policy, which involves government taxation and spending, is under the purview of the government, particularly, Congress and the executive branch, and not the Federal Reserve.
The Federal Reserve's main functions are to administer the nation's monetary policy, supervise and regulate banks, maintain financial system stability, and provide financial services to depository institutions, the U.S. government, and foreign official institutions. Influence over the money supply is achieved through tools such as open market operations, reserve requirements, the discount rate, and the federal funds rate target. The Fed's actions can expand or contract credit, thereby affecting economic activity levels.