If the Fed wants to raise the federal funds rate, it needs to

Question

Quizplus · Accepted Answer

When the Fed wants to raise the federal funds rate, it needs to decrease the quantity of reserves in the banking system. This can be achieved by selling government securities, which drains reserves from the banks and makes them more expensive. This, in turn, increases the federal funds rate, which is the interest rate that banks charge each other for overnight loans of reserves. By contrast, buying government securities would increase the quantity of reserves in the banking system and put downward pressure on the federal funds rate.

If the Fed Wants to Raise the Federal Funds Rate