What is the Federal Reserve?

An economics expert outlines how the Federal Reserve uses interest rates to control inflation, relying on both fiscal and monetary policies.

In this story published Mar. 11, 2025, by The Motley Fool:

The Fed cannot control inflation alone. Inflation is always a joint monetary-fiscal phenomenon. When the government is seen as fiscally responsible, the Federal Reserve has some control over inflation by adjusting the short-term nominal interest rate or the money supply. Raising the short-term interest rate leads to an increase in long-term interest rates, which raises the cost of capital. As a result, both consumers and corporations tend to postpone spending on durable goods and investments. This reduction in spending decreases total demand, which in turn helps to lower inflation.

– Domenico Ferraro, associate professor of economics