ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The Federal Open Market Committee (FOMC) judges that inflation of 2 percent over the longer run, as measured by the annual change in the price index for personal consumption expenditures, is most consistent with the Federal Reserve’s mandate for maximum employment and price stability.

Detailed explanation-2: -Maintaining stable prices Since 1996, Fed policymakers have generally adopted the stance that their target for doing so was an inflation rate of around 2%.

Detailed explanation-3: -When inflation is too high, the Federal Reserve typically raises interest rates to slow the economy and bring inflation down. When inflation is too low, the Federal Reserve typically lowers interest rates to stimulate the economy and move inflation higher.

Detailed explanation-4: -Tools the Federal Reserve Uses To Control Inflation The Fed has several tools it traditionally uses to tame inflation. It usually uses open market operations (OMO), the federal funds rate, and the discount rate in tandem. It rarely changes the reserve requirement.