ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -When the Fed wants to adjust interest rates, it moves the range set by IORB and ON RRP rates higher or lower. This causes the banks to raise or lower their interest rates correspondingly. In turn, these rates affect all other interest rates in the economy.

Detailed explanation-2: -Discount Rate If the Fed wants to give banks more reserves, it can reduce the interest rate it charges, thereby inducing banks to borrow more. Alternatively, it can soak up reserves by raising its rate and persuading the banks to reduce borrowing.

Detailed explanation-3: -The Federal Reserve conducts the nation’s monetary policy by managing the level of short-term interest rates and influencing the availability and cost of credit in the economy. Monetary policy directly affects interest rates; it indirectly affects stock prices, wealth, and currency exchange rates.

Detailed explanation-4: -If inflation is too high, tightening monetary policy (which raises interest rates in the economy) will help to bring inflation back towards the target, but will also be likely to reduce economic growth and put upward pressure on unemployment, all else being equal.