If the Fed wants to raise the federal funds rate, it will _____ bonds, which _____ bond prices.

Question

Quizplus · Accepted Answer

When the Fed wants to raise the federal funds rate, it sells bonds in the open market. This increases the supply of bonds, which in turn lowers bond prices. As bond prices and bond yields are inversely related, the lower bond prices means higher yields, which raises the benchmark interest rate that banks charge each other for overnight loans - the federal funds rate.

If the Fed Wants to Raise the Federal Funds Rate