Final answer:
To combat inflation, the Federal Reserve could enact contractionary monetary policies such as raising interest rates, selling government securities in open market operations, or increasing the required reserve ratio for banks.
Step-by-step explanation:
Monetary Policy and Inflation Control
To slow the rate of inflation, the Federal Reserve could implement contractionary monetary policy. One such policy is to increase the federal funds rate, which is the interest rate at which banks borrow money from each other overnight. By doing so, they make borrowing more expensive, which tends to reduce consumer and business spending and investment, leading to a slowdown in the growth of the money supply and, ultimately, a decrease in inflation pressures.
Open market operations are another tool, which involve the selling of government securities to remove funds from the banking system. This again makes money more scarce and expensive. Moreover, raising the required reserve ratio would force banks to hold a higher percentage of deposits in reserve, reducing their ability to lend and thus slowing the creation of new money, which is also inflationary when excessive.