Final answer:
The U.S. Federal Reserve regulates the balance between the goals of low unemployment and low inflation by controlling the federal funds rate, which in turn influences overall interest rates, including those on home loans.
Step-by-step explanation:
The U.S. Federal Reserve aims to balance the economic objectives of low unemployment and low inflation by influencing interest rates. It achieves this balance by either raising or lowering the federal funds rate, which subsequently affects other market interest rates such as those on home loans and savings accounts. A lower federal funds rate generally reduces other interest rates, making it cheaper to borrow; conversely, a higher federal funds rate makes borrowing more expensive, dampening inflation but potentially also slowing down economic growth.
For instance, if the Fed increases interest rates, this would be intended to curb inflation, as higher borrowing costs can slow down consumer spending and business investments. On the other side, lowering interest rates helps to stimulate the economy by making credit more accessible. However, if rates are already near zero, the Fed can use other measures, such as purchasing assets from banks, to inject liquidity into the market, thereby indirectly influencing interest rates and stimulating economic activity.