What is the floor framework that the Federal Reserve uses to influence the federal funds rate?
A)Operations by the Open Market Trading Desk at the Fed
B)The use of open market operations by the Fed
C)The Fed's approach of setting other interest rates to put a lower bound on how low the federal funds rate can go
D)The Fed's approach of setting the discount rate above the federal funds rate

Question

Quizplus · Accepted Answer

The Federal Reserve uses a floor framework by setting other interest rates, such as the interest paid on excess reserves, to establish a lower bound on how low the federal funds rate can go. This approach is meant to prevent the federal funds rate from falling too close to zero, as happened during the Great Recession. The use of open market operations and the discount rate can also influence the federal funds rate, but they are not part of the floor framework.

What Is the Floor Framework That the Federal Reserve Uses