Final answer:
The Federal Reserve now primarily uses open market operations over adjustments to the reserve requirement and the discount rate due to their greater precision and impact on monetary policy. Changes in reserve requirements are less favored due to potential disruption, while the discount rate has less impact as banks usually find cheaper sources for funds.
Step-by-step explanation:
In recent decades, the Federal Reserve has shifted its monetary policy tactics. It has moved away from relying heavily on adjustments to the reserve requirement and the discount rate. Instead, the Fed has focused on open market operations to steer the economy. Open market operations involve the buying and selling of government securities to influence the level of reserves in the banking system, thereby affecting the federal funds rate and long-term interest rates. This approach is seen as a more precise and powerful tool for executing monetary policy. Adjusting the reserve requirement is now used less frequently due to its disruptive potential and the difficulty banks would face in complying with abrupt changes. Moreover, changing the discount rate has become less influential since banks now primarily borrow from other sources at rates lower than the Fed's discount rate.
The Great Recession and the subsequent need for unconventional monetary tools have seen the Fed greatly expand its holding of longer-term securities through open market purchases. This strategy is intended to put downward pressure on longer-term interest rates, support economic activity, and enhance job creation by making financial conditions more accommodative. As the economic landscape evolves and new challenges arise, the Federal Reserve continues to adapt its methods for maintaining economic stability.