Some General Features of the Federal Reserve's Approach to Policy

Monetary policy operates directly on the discount rate, reserve requirements against demand and time deposits and the Federal Reserve Banks' portfolio of securities. The administration of the discount window and the supervision of banks are, at times, included as part of monetary policymaking. These policy instruments are expected to modify the money supply and to alter the level of interest rates and other magnitudes on the credit market. The effect that actually emerges from the use of policy instruments by the Federal Reserve depends crucially on the nature of the process through which these instruments operate.