Monetary Policy

Quantitative tightening is a Federal Reserve program that reduces the central bank's balance sheet by allowing securities to roll off, and that program began in 2022.

The Federal Reserve can reinvest principal payments from its holdings into Treasury bills instead of allowing those assets to roll off its balance sheet.

The Federal Reserve has a dual mandate from the U.S. Congress to promote maximum employment and stable prices.

The Federal Reserve can reduce its securities holdings by allowing Treasury securities and mortgage-backed securities to mature without reinvesting proceeds, a form of balance-sheet reduction commonly called quantitative tightening.

The Federal Reserve maintains an inflation target of 2%.

Interest-rate cuts by the Federal Reserve can gradually lower borrowing costs for mortgages, auto loans, and business loans, which tends to encourage more consumer spending and business hiring.

The Federal Reserve relies on regular economic data releases such as the monthly jobs report and inflation report to inform its monetary policy decisions, and disruptions to those data releases can impede policy decision-making.

Federal Reserve policymakers often differ in emphasis when setting interest-rate policy, with some prioritizing the risk of rising unemployment and others prioritizing the risk of persistent inflation above the 2% target.

A 2025 National Association for Business Economics (NABE) survey of 40 economists projected U.S. real gross domestic product (GDP) growth of 1.8% in 2025 and 1.7% in 2026.

The Federal Reserve's minutes from its September 16–17, 2025 policy meeting reported that a few participants favored keeping the federal funds rate unchanged at that meeting while almost all participants supported a subsequent rate cut.

The Federal Reserve's 2025 meeting minutes indicated that most participants judged it likely would be appropriate to implement further interest rate cuts over the remainder of 2025.

The Federal Reserve enacted a total of 11 interest-rate increases during 2022 and 2023.

The Federal Reserve purchased longer-term Treasury securities and mortgage-backed securities in 2020 and 2021 to lower longer-term interest rates and support the economy during the COVID-19 pandemic.

The Federal Reserve ended its pandemic-era asset purchases in 2021 and subsequently raised policy interest rates to combat rising inflation.

Lower nominal interest rates reduce the opportunity cost of holding non-yielding assets like gold, making gold relatively more attractive compared with interest-bearing government bonds such as Treasuries.

Lowering a central bank's main interest rate can increase inflationary pressure because cheaper borrowing costs tend to raise aggregate demand and push up prices.

Higher interest rates can reduce inflation because they raise borrowing costs for households and businesses, which tends to lower spending and aggregate demand.