The Federal Reserve, America's central bank, is responsible for conducting monetary policy and controlling the money supply. The primary tools that the Fed uses are interest rate setting and open market operations (OMO). ... If that fails it can use unconventional policy such as quantitative easing.

Does the Fed really control interest rates?

Banks set their own interest rates when borrowing from other banks' reserve funds but stay within the target fed funds rate set by the Fed. The Fed heavily influences this rate using interest on reserve balances (IORB) and overnight reverse repurchase agreements (ON RRP).

How does fed manipulate interest rates?

The Fed sets target interest rates at which banks lend to each other overnight in order to maintain reserve requirements—this is known as the fed funds rate. The Fed also sets the discount rate, the interest rate at which banks can borrow directly from the central bank.