What does the Federal Reserve do, and how does it affect the US dollar?

Monetary policy in the United States is formed by the Federal Reserve (Fed). The Federal Reserve (Fed) has two main tasks: achieving price stability and promoting full employment. The primary tool to achieve these goals is adjusting interest rates. When prices rise too quickly and inflation is above the Federal Reserve's (Fed) target of 2%, it raises interest rates, which leads to increased borrowing costs throughout the economy. This results in a stronger USD because it makes the United States a more attractive place for international investors to keep their money. When inflation drops below 2% or when the unemployment rate is very high, the Federal Reserve (Fed) may lower interest rates to encourage borrowing, which puts pressure on the dollar.