What does the Federal Reserve manage to maintain economic stability?

The Federal Reserve, as the central banking system of the United States, focuses primarily on managing the supply of currency and interest rates to promote economic stability. By controlling the money supply, the Federal Reserve aims to influence inflation and employment levels. Increasing the money supply can stimulate economic activity, while decreasing it can help to keep inflation in check.

Additionally, the Federal Reserve adjusts interest rates to encourage or discourage borrowing and spending. Lower interest rates generally lead to more borrowing and spending by businesses and consumers, which can boost economic growth. Conversely, higher interest rates can help cool down an overheated economy and curb inflation.

This approach to managing the economy distinguishes the Federal Reserve’s role from that of fiscal policy, which is primarily concerned with taxation and government spending, as well as other areas such as national defense or social welfare, which are not directly under the purview of the Federal Reserve.