question archive In the fall of 2002, the Fed voted to decrease the federal funds rate target on several different occasions, reducing it from 3% to 1
In the fall of 2002, the Fed voted to decrease the federal funds rate target on several different occasions, reducing it from 3% to 1
Subject:EconomicsPrice:2.88 Bought3
In the fall of 2002, the Fed voted to decrease the federal funds rate target on several different occasions, reducing it from 3% to 1.75%.
What action in the "open market" would the Fed's trader have had to take, other things equal, in order to induce this decrease in the federal funds rate?
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To reduce the federal fund rate target, the Fed must be willing to lend to other financial institutions at a lower rate. This could be done be increasing the amount of loanable funds to the market. To achieve this, the Fed would have to purchase government securities from other banks and in return increase their reserve balance, thereby injecting liquidity into the overnight market and reducing the prevailing interest rate in the market.
