The Economy & the Fed

The Federal Reserve

The central bank of the United States, usually called “the Fed.” Congress gave it a dual mandate: keep employment as high as possible and keep prices stable, which it defines as about 2% inflation a year, measured by the PCE price index. Its main lever is interest rates. When inflation runs too hot, the Fed raises rates to cool borrowing and spending; when the economy weakens, it lowers them. Because so much depends on what the Fed does next, markets react to every inflation and jobs report by guessing how the Fed will respond.

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