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	Federal Reserve Monetary Policy Federal Reserve System: FED Fed. Funds Rates Discount Rate Prime Rate FDIC-Federal Deposit Insurance Corporation Federal Funds Float Money Supply Full-Reserve Banking Inflation Monetary Policy Money Supply Open Market Operations and the Federal Reserve Politics v. Independence Federal Reserve Setting Rates There are basically three ways that the Federal Reserve controls monetary policy:  buying and selling government securities, regulating the money in reserves at member banks, and regulating the interest rates to banks. The Federal Reserve uses the buying and selling of government securities to regulate the amount of money in supply.  When the Federal Reserve buys the securities it causes more money into circulation.  This increase in the money supply makes interest rates drop and people tend to borrow and spend more.  The reverse then happens when the Federal Reserve sells securities, because interest rates go up and people cannot borrow as easily. While the Federal Reserve controls the amount of money in circulation, it also regulates how much money banks have to keep in their reserves.  This regulation requires that member banks maintain a reserve of their deposits, as they will often loan out much of that money.  The less money required for reserves, the lower interest rates and easier borrowing becomes for consumers. Finally, the Federal Reserve also develops monetary policy by setting the interest rates they charge banks that want to borrow from the Fed, which they will often do to meet short-term needs.  This interest rate, often referred to as the "discount rate," sometimes impacts the lending capacities of banking institutions.  However, the effect is usually rather negligible.