The Fed can increase the federal funds rate by

Question

Quizplus · Accepted Answer

Selling government bonds reduces the amount of money in circulation, which then increases market interest rates and the federal funds rate. Buying government bonds has the opposite effect, decreasing interest rates. The Fed cannot simply announce a higher rate because their control over the federal funds rate comes from their ability to influence the supply and demand of reserves in the banking system, which is achieved through open market operations such as selling government bonds.

The Fed Can Increase the Federal Funds Rate by