Question

The Federal Reserve wants to change the nominal interest rate from 4% to 6%. What action must the Federal Reserve take?

Answer 1

Federal Open Market Committee

Step-by-step explanation:

The Federal Reserve raises or lowers interest rates with the Federal Open Market Committee. That's the monetary policy of the Federal Reserve Banking System.

The FOMC sets a goal for the Federal Reserve funds rate after checking current economic data. The Federal Reserve funds rate is the interest rate banks charge each other for loans. Those loans are called fed funds. Banks use these funds to meet the federal reserve requirement each night. If they don't have enough reserves, they will borrow the fed funds needed.

Answer 2

The Federal Reserve, in working to change the nominal interest rate from 4% to 6%, would bring the issue to the Federal Open Market Committee and propose a 6% target to the member banks.

Banks around the country would then put into motion plans to raise the rate to meet the Central Bank's target of 6% and may only do so after being induced by the Federal Reserve through the depositing or withdrawal of funds from the Central Bank's reserves, which is akin to the Central Bank adding or removing credit from the system.