What the Fed Can Do When Markets Get Shaky 🛠
Today, the Fed is holding a closed-door meeting to review interest rates for regional banks. This comes days after Trump announced new import tariffs, raising concerns about growth and inflation. If pressure builds, the Fed has several tools to act 🔧
In times like this, the Fed doesn’t just observe. It acts. And it has specific tools to cool down or stimulate the economy. Knowing how they work helps you understand what might come next and how markets could react 👇
💲Federal Funds Rate
This is the base rate for overnight lending between banks. It influences rates on mortgages, credit cards, business loans, and savings accounts. A 0.25% move here can ripple across the entire economy.
💲Open Market Operations
The Fed buys or sells Treasuries to manage short-term liquidity. Buying bonds injects dollars into the system, lowers yields, and eases credit. Selling bonds withdraws liquidity, pushing rates higher. It’s the primary tool for steering interest rates.
💲Reserve Requirements
This is the percentage of customer deposits banks must hold in cash. Increasing it reduces the funds banks can lend. Lowering it expands credit supply (right now it's 0% for all depository institutions, lol). Though rarely changed, it has a powerful direct impact on lending capacity.
