The Federal Reserve has a dual mandate: It must maintain price stability and maximum employment throughout the economy. To fulfill that mandate, the Fed has multiple policymaking tools at its disposal.

The Federal Reserve Board of Governors controls the discount rate and reserve requirements, and the Federal Open Market Committee (FOMC) engages in open market operations, which primarily involve adjusting the federal funds rate.

The federal funds rate influences other rates across the economy, such as the rate on business loans and credit cards. That means the FOMC can lower the federal funds rate to stimulate economic growth and raise the federal funds rate to slow economic growth. For instance, the FOMC has raised its benchmark rate by 5 percentage points since March 2022 -- the fastest series of rate hikes since the early 1980s -- in an effort to bring inflation down.

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Source Fool.com