Open market operations can also

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Can slow economic growth and even increase unemployment but is often seen as necessary to cool the economy and keep prices under control In the early s with inflation hovering in the double digits the Federal Reserve raised its benchmark interest rate to a record high of Although the high rates caused a recession they were able to return inflation to the desired range of to over the next few years Monetary Policy Implementation Tools Central banks use a number of tools to shape and implement monetary policy Buy and sell shortterm bonds on the open market


using newly created bank reserves This is known as open market operations Open market operations target shortterm interest rates such as the federal funds rate The central bank adds money to the banking system by buying assets Australia WhatsApp Number or removes it by selling assets and banks respond by lending money more readily at lower rates or more expensively at higher rates until the central banks interest rate target is met  target specific increases in the money supply to make banks lend money more easily by purchasing a specific amount of assets This is the process





known as quantitative easing QE Changing interest rates or required guarantees required by the central bank for emergency direct loans to banks in its role as lender of last resort In the United States this rate is known as the discount rate Banks will lend more freely or less freely depending on this interest rate Authorities can also manipulate reserve requirements This is the money that banks must keep as a percentage of the deposits made by their customers in order to ensure their ability to meet their obligations Reducing reserve requirements frees up more capital for banks to make loans or purchase other assets.