Federal Reserve and How It Affects Inflation

Topic: Finance
Words: 282 Pages: 1
Table of Contents


It is challenging to find an equilibrium between the free market and stable prices. Countries often create governing bodies that attempt to predict market fluctuations and make subtle yet critical actions against possible destabilizations. In the United States, the Federal Reserve plays a role in issuing policies based on the country’s needs and demands. This paper will discuss the Federal Reserve and how it affects inflation.


This governing body oversees many of the United States’ economic policies. The Federal Reserve has the authority over banks and the country’s monetary policies (Bernanke, 2022). The organization is allowed to have significant freedom of actions that its Board of Directors deems necessary to prevent a crisis. Moreover, it has a complex approach to analyzing markets that are being upgraded as required. The role of the Federal Reserve includes predicting financial problems and decreasing their adverse impact on the U.S. economy (Abolafia, 2020). The organization’s primary way of affecting the economy lies in controlling interest rates. The Federal Reserve traditionally reduces inflation by reducing demand due to higher interest rates that make it less viable to allow easy borrowings (Wile, 2022). Its authority is paramount in preventing banks from disrupting the money supply by lending money to customers at times when financial conditions are below optimal.


In conclusion, the Federal Reserve acts as an analytics organization that attempts to stabilize price fluctuations through various interventions into the country’s monetary policies. This organization recognizes and mitigates risks that can be detrimental to the United States. The Federal Reserve controls inflation via several interest rates that govern the behavior of banks and customers by reacting to potential changes in demand and supply on the market.


Abolafia, M. Y. (2020). Stewards of the market: How the Federal Reserve made sense of the financial crisis. Harvard University Press.

Bernanke, B. S. (2022). 21st century monetary policy: The Federal Reserve from the great inflation to COVID-19. W. W. Norton & Company.

Wile, R. (2022). How raising interest rates helps fight inflation and high prices. NBC News. Web.

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