What does the Federal Reserve use to regulate the economy under monetary policy?

The Federal Reserve utilizes bank reserve requirements and interest rates as primary tools to regulate the economy under monetary policy. By adjusting reserve requirements, the Federal Reserve can control how much money banks are required to hold in reserve versus how much they can lend out. This directly influences the money supply in the economy.

In addition, the Federal Reserve sets the federal funds rate, which determines the interest rates for borrowing and lending among banks. Changes in the interest rates affect consumer and business spending, investment, and ultimately overall economic activity. Lowering interest rates encourages borrowing and spending, while raising them can help cool off an overheating economy.

Using these tools, the Federal Reserve aims to achieve key objectives such as controlling inflation, promoting maximum employment, and stabilizing the financial system. Other options involve different areas of economic regulation; fiscal budget allocations pertain to government spending rather than monetary policy, taxation rates are managed by Congress and not the Federal Reserve, and stock market interventions are not part of the Federal Reserve's monetary policy framework.