Which action is not taken by the Federal Reserve to influence interest rates?

Which action is not taken by the Federal Reserve to influence interest rates?

• A. Buying government securities
• B. Raising interest rates
• C. Raising the reserve requirement
• D. Buying and selling mortgages

Answer: (D)

The Federal Reserve primarily influences interest rates and overall economic activity through various tools, including monetary policy actions like buying government securities, raising interest rates, and adjusting reserve requirements. Buying government securities injects liquidity into the economy, which can help lower interest rates. Raising interest rates is a direct method to tighten the money supply, while changing the reserve requirement alters how much banks must hold in reserves versus what they can loan out, also impacting interest rates. However, buying and selling mortgages is not a standard action used by the Federal Reserve to directly influence interest rates. The Fed typically focuses on government securities, as they are more liquid and widely accepted in the markets, providing more efficient control over the money supply. Mortgages, while important for the housing market, are not a direct tool of monetary policy used by the Federal Reserve to set interest rates or influence broader economic conditions in the same way government securities do. This difference in focus highlights why this option is not part of the Federal Reserve's actions to influence interest rates.

The Federal Reserve primarily influences interest rates and overall economic activity through various tools, including monetary policy actions like buying government securities, raising interest rates, and adjusting reserve requirements. Buying government securities injects liquidity into the economy, which can help lower interest rates. Raising interest rates is a direct method to tighten the money supply, while changing the reserve requirement alters how much banks must hold in reserves versus what they can loan out, also impacting interest rates.

However, buying and selling mortgages is not a standard action used by the Federal Reserve to directly influence interest rates. The Fed typically focuses on government securities, as they are more liquid and widely accepted in the markets, providing more efficient control over the money supply. Mortgages, while important for the housing market, are not a direct tool of monetary policy used by the Federal Reserve to set interest rates or influence broader economic conditions in the same way government securities do. This difference in focus highlights why this option is not part of the Federal Reserve's actions to influence interest rates.