Every now and then the Fourth Estate fulfills its commitment to public education by taking readers back to the fundamentals of how institutions work. The Guardian has done so with an easy-to-watch primer on the Federal Reserve.
Two ways: first, it can pump more money into the financial system if the economy appears to be slowing, or cut down the money supply if the economy seems to be overheating.
Second it can also raise or lower interest rates. When the Fed lowers interest rates it makes borrowing cheaper, which is supposed to stimulate the economy by getting businesses – and people – to spend money. Similarly, when interest rates go up, borrowing becomes more expensive, and the economy cools.