Actual direct monetary influence on the markets

Reference no: EM13933583

The Federal Reserve Bank uses a variety of tools to change the supply of money and interest rates. Although the Federal Reserve cannot affect income, output, or inflation directly, it can implement policies that influence interest rates. In turn, the changes in interest rates can influence real spending and output. One of those actions is to change the federal funds rate (referred to as the fed rate). This is the rate banks charge each other for loans of reserves in order to meet the minimum reserve requirements. It happens frequently that when the fed rate changes there are noticeable changes in the financial markets. Does a change in the federal funds rate really have an actual direct monetary influence on the markets or is it nothing more than a perception? Explain.

Reference no: EM13933583

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