Federal Reserve

The "Fed" is the central bank for the U.S. and operates with the mandate of providing a monetary policy that promotes economic stability, high employment, and stable price levels. The Fed attempts to both stimulate and dampen the economy through their adjustment of the Discount Rate and the Federal Funds Rate. The Discount Rate is a set figure, while the Fed Funds Rate adjusts daily to reserve requirement needs by banks. The Fed buys and sells U.S. Treasury securities in the open market to adjust the Fed Funds Rate to its agreed upon level. Through their manipulation of both the Discount and Fed Funds Rates, the Fed is able to adjust short-term interest rates directly; however, they have only an indirect influence on longer-term rates. Interest rates on longer maturity bonds tend to track GDP growth rates and the level of inflation.