What does the Fed do to increase consumer confidence? If the Fed were to take action because consumer confidence has fallen and consumer spending is decreasing, what strategy will the Federal Reserve follow?
The Federal Reserve (the Fed) uses monetary policy to try to improve the economy. When there is excessive unemployment in the economy (during a recession) the Fed needs to try to increase the money supply. When the Fed increases the money supply, consumer confidence will often rise because people will feel that the economy is likely to improve. They may also have an easier time of buying things.
The most common ways for the Fed to increase the money supply are by lowering interest rates and by buying government securities on the open market. Of these, lowering the interest rates is more likely to help improve consumer confidence because consumers will be more aware of the drop in interest rates. It will help them be more able to buy big ticket items because credit will be cheaper.
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