What role does the Federal Reserve play in controlling inflation?

What role does the Federal Reserve play in controlling inflation?

The Federal Reserve manages inflation primarily through monetary policy, adjusting interest rates to influence economic activity.

How do interest rates affect inflation?

When the Fed raises interest rates, borrowing becomes more expensive, which can reduce spending and slow down inflation.

What happens if inflation gets too high?

If inflation rises too high, it can erode purchasing power, leading to economic instability, prompting the Fed to intervene.

Can the Federal Reserve completely control inflation?

While the Fed can influence inflation, it cannot control it entirely due to various external economic factors.

What tools does the Federal Reserve use to manage inflation?

The Fed uses tools like open market operations, the discount rate, and reserve requirements to manage inflation.