The Fed can control inflation or stimulate deflation by buying and selling US Treasury bonds. When it buys, the money supply increases; When it was sold, the money supply decreased. These transactions happen almost every day. On the other hand, they can help the government decide how much money is available. Is it easy to borrow money Is the borrowing cost high? These will affect how many people will have jobs, whether prices will be stable, how many goods and services will be produced and sold, and so on.

reserve

The Federal Reserve may require commercial banks to keep a certain proportion of funds as reserves, which can be cash in the national treasury or a special account for reserve settlement of the Federal Reserve. Since banks can't use reserves, the Federal Reserve can guide banks to lend more or less money to the market by changing the required reserve ratio. The more funds banks need to reserve, the less they can lend, the higher the loan interest rate, and the greater the constraints on industries that need loans, such as retail and construction.

discount rate

It is also the least used at present. The Federal Reserve will set the discount rate for banks to borrow from the Federal Reserve. Banks can borrow from the discount window of the Federal Reserve, thus having more funds for lending. However, well-run banks usually do not borrow money from the discount window. In the past two decades, the influence of the Federal Reserve in this field has been declining.