1. The Federal Reserve Board controls, together with the Federal Council, the two main benchmark interest rates in the United States.
The Federal Reserve Board determines the discount rate, and the Federal Open Market Committee determines the federal funds rate.
Adjust the market through interest rates.
For example, when the economy is depressed, interest rates are lowered to stimulate the economy.
As a result of lower interest rates, the costs of various entities will be reduced, which will stimulate consumption and increase the enthusiasm of enterprises to invest, thereby creating demand and stimulating economic growth.
If the economy overheats, it will run in the opposite direction, raising interest rates to systematically increase the cost of capital for consumers and businesses.
For example, the average person’s car and home loans will increase, thus curbing the overheating of the economy.
2. Printing Money Buying and Selling Treasury Bonds If the U.S. government is to maintain its operations, it needs financial support, and U.S. finances depend largely on the issuance of U.S. Treasury bonds.
In order to maintain the US Treasury, the Fed bought large amounts of US Treasury bonds, while lowering the interest rate on US Treasury bonds and Treasuryizing them.
Maintain stability in U.S. financial markets, lower the risk-free yield, the yield on U.S. bonds, and keep the stock market booming.
3. As the regulator of the federal funds rate, reserve rates generally remain positively correlated with the federal funds rate.
The Fed influences the size of reserves by adjusting the level of interest it pays on reserves and excess reserves.
When interest rates on reserves and excess reserves rise, commercial banks have more incentive to deposit more money in the Fed’s accounts as reserves.
Because the interest rate on the money that’s sitting at the Federal Reserve is getting higher and higher.
This reserve regulation is also known as price regulation.