How does the Fed reach its target for the federal funds rate?

Question

Quizplus · Accepted Answer

The Fed reaches its target for the federal funds rate by buying and selling Treasury securities. When the Fed buys these securities on the open market, it injects money into the banking system, which can lower the federal funds rate. When the Fed sells these securities, it removes money from the banking system, which can raise the federal funds rate. Therefore, the Fed uses open market operations to influence the supply of reserves in the banking system, which in turn impacts the federal funds rate.

How Does the Fed Reach Its Target for the Federal