Richard Timberlake explains in two short paragraphs : What the Federal Reserve does have is a powerful moneymaking machine that operates through the offices of its New York bank. In activating this machine to raise rates, the Fed’s decision-making board, the Federal Reserve Open-Market Committee (FOMC), issues a directive to the bank’s account manager to sell more or buy fewer government securities in New York’s financial market. This time the directive was to buy fewer. Since the Fed is a major player in the government securities market, when it buys fewer securities it causes the price to fall and their interest rate to increase. Unlike anyone else who buys something in markets, a Federal Reserve purchase is not made with old money but with brand-new money. The Fed creates the means of payment. If the seller of the securities wants cash, the Fed uses its authority to print new Federal Reserve notes. If the seller wants a check, the Fed account manager has the authority to issue o...
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