What two aspects can the Fed influence regarding money?

The Federal Reserve (the Fed) plays a crucial role in the economy by influencing both the supply of money and the cost of that money, which is primarily represented by interest rates.

When the Fed adjusts the money supply, it can use tools such as open market operations, reserve requirements, and the discount rate. By purchasing or selling government securities, the Fed can increase or decrease the amount of money circulating in the economy. An increase in the money supply generally leads to lower interest rates, making borrowing cheaper, which can stimulate economic activity.

The cost of money, or the interest rate, is another vital aspect that the Fed can influence. By setting the federal funds rate, which is the interest rate at which banks lend to each other overnight, the Fed can affect overall economic conditions. A lower federal funds rate typically encourages borrowing and spending, while a higher rate can have the opposite effect, helping to control inflation.

Therefore, the Fed's ability to influence both the supply of money and its cost is fundamental to its monetary policy objectives, including stabilizing prices and maximizing employment. This comprehensive control allows the Fed to implement strategies that can guide the economy toward desired outcomes.