The Fed could make the market federal funds rate equal the target rate by:

Question

Quizplus · Accepted Answer

By entering the federal funds market as a borrower or lender, the Fed can directly influence the federal funds rate and bring it in line with the target rate. This is a common tool used by the Fed to implement monetary policy. Option A would be difficult to enforce, while setting the discount rate below the federal funds rate (Option B) would encourage more borrowing and could lead to increased inflation. Option D is also a tool that the Fed uses, but it is not sufficient on its own to bring the federal funds rate in line with the target rate.

The Fed Could Make the Market Federal Funds Rate Equal