How the Federal Reserve controls your money
The US Federal Reserve steers the economy by adjusting interest rates, directly influencing how much money circulates and impacting everyday finances and global markets.
The Federal Reserve, or the Fed, is the US central bank that manages the nation's money. It primarily controls the money supply by adjusting interest rates, especially the federal funds rate. Raising this rate makes borrowing more expensive, slowing spending and economic growth, while lowering it encourages investment and stimulates activity. This power helps the Fed achieve its dual goals of maximum employment and stable prices, often targeting 2% inflation. For example, during the 2008 crisis, the Fed slashed rates to near zero, injecting liquidity to prevent a deeper recession. These decisions ripple globally, influencing international trade and currencies.