Currently the Fed sets monetary policy by targeting

Question

Quizplus · Accepted Answer

The Federal Reserve uses open market operations, such as buying or selling government securities, to adjust the supply of reserves in the banking system and influence the federal funds rate, which is the interest rate banks charge each other for overnight loans. By targeting the federal funds rate, the Fed indirectly influences other short-term interest rates, such as the prime rate, which is the rate banks charge to their best customers. Therefore, A) the Fed funds rate is the best choice for how the Fed sets monetary policy.

Currently the Fed Sets Monetary Policy by Targeting