What role does the Federal Reserve play in the monetary and financial system, and what tactics does it use to influence monetary policy?
The Federal Reserve System essentially develops and carries out monetary policy by regulating the nation's money supply. The main tactic the Fed uses to accomplish this is raising and lowering interest rates, which also regulates the financial system because it has an effect on borrowing.
The Federal Reserve System describes its roles in the following way:
- Conduct the nation's monetary policy;
- Provide and maintain an effective payments system; and
- Supervise and regulate banking operations.
Two of these roles are directly referenced in this question. The main tactics the Fed uses to conduct the nation's monetary policy involve regulating banking operations.
The Fed can help determine how much money is in circulation by raising and lowering interest rates. These rates are known as "discount rates," and they do not refer directly to loans consumers receive from banks. Rather, the "discount rate" is the...
(The entire section contains 310 words.)
check Approved by eNotes Editorial