when the fed wants to lower the federal funds rate it

Reducing the Fed's holdings should have the opposite effect - tamping down demand and helping to curb inflation. In addition to raising interest rates, the Fed is expected to announce plans to gradually reduce the collection of government bonds and mortgage-backed securities that it bought during the pandemic.īuying those bonds helped pump money into the economy and keep borrowing costs low. Those concerns contributed to last week's sharp sell-off in the stock market. Deutsche Bank, a German lender and major Wall Street firm, last week forecast a 'major recession' next year. They warn the kind of aggressive action that's now needed to control prices is likely to trigger an economic downturn. Some analysts are skeptical that the central bank can strike that delicate balance, having waited until inflation has climbed so high. 'I don't think you'll hear anyone at the Fed say that that's going to be straightforward or easy.' The Fed's intent in raising rates is to discourage spending just enough to bring down inflation, without tipping the economy into recession - what economists call a 'soft landing.' The central bank is worried that prices are climbing too rapidly as people continue to spend money, from shopping for stuff to booking long-delayed vacations.ĭemand is so strong it's outpacing what businesses can deliver, given that global supply chains are still fragile and employers are still struggling to find enough workers.Īirline passengers prepare to enter a security checkpoint at San Francisco International Airport on April 19. Here's a quick look at the Fed's battle plan. The central bank is likely to keep pushing borrowing costs higher in the months to come. It's a clear sign of the urgency with which the Fed is approaching inflation, as prices continue to climb at the fastest pace in 40 years.Īnd the Fed won't be done there. Policymakers start a two-day meeting on Tuesday, and they are widely expected to raise interest rates by half a percentage point - the largest rate hike in more than two decades.

The Federal Reserve is about to deliver its biggest punch yet in the fight against surging inflation. The Fed is widely expected to raise interest rates by half a percentage point at its meeting this week. When the Fed wants to tighten monetary policy and raise the Federal Funds rate, the traders at the Feds trading desk extract cash from the financial system.

Federal Reserve Chair Jerome Powell collects his notebooks as he testifies before the Senate Banking Committee on March 3.

When the fed wants to lower the federal funds rate it