According to the Taylor rule, the Fed should raise the federal funds interest rate when inflation________ the Fedʹs inflation target or when real GDP ________ the Fedʹs output target.

Monetary policy in the United States is the actions and communications of the Federal Reserve (Fed) to promote stable prices, maximum employment, and moderate long-term interest rates. The Fed is the central bank of the US, and Congress has instructed it to pursue these goals. The Fed's monetary policy influences the cost of consumer debt, such as mortgages, credit cards, and automobile loans.  The Fed's monetary policy is implemented primarily by targeting the federal funds rate, which is the interest rate that banks charge each other for lending or borrowing reserve balances overnight. The... Show more

Monetary policy in the United States is the actions and communications of the Federal Reserve (Fed) to promote stable prices, maximum employment, and moderate long-term interest rates. The Fed is the central bank of the US, and Congress has instructed it to pursue these goals. The Fed's monetary policy influences the cost of consumer debt, such as mortgages, credit cards, and automobile loans. 

The Fed's monetary policy is implemented primarily by targeting the federal funds rate, which is the interest rate that banks charge each other for lending or borrowing reserve balances overnight. The Federal Open Market Committee (FOMC) is the Fed's monetary policymaking body, and it sets the target range for the federal funds rate. The FOMC also issues forward guidance to shape market expectations about interest rates and financial conditions. 
 

Related Test: Money, Banking, and Financial Markets Practice Test: Tools for Monetary Policy (U.S.)

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