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

Question

Quizplus · Accepted Answer

To reach its target for the federal funds rate, the Fed adjusts the level of reserves available to banks through open market operations, which involve buying or selling government securities. By adding or reducing the supply of reserves in the banking system, the Fed affects the supply of funds available to banks to lend to each other overnight in the federal funds market, which in turn affects the federal funds rate. The discount rate and reserve requirements are also tools that the Fed can use to influence the level of reserves in the banking system, but they are not direct instruments for setting the federal funds rate. Directly setting the federal funds rate is not an option for the Fed, as the rate is determined by the supply and demand for reserves in the market.

How Does the Fed Reach Its Target for the Federal