The Fed controls the so-called "federal benchmark interest rate". The word is confusing, but it is essentially the interbank lending rate in the United States. The meeting of Fed leaders is called FOMC, the Federal Open Market Committee.

At every meeting, they have to vote to decide whether the federal benchmark interest rate will rise or fall. If they want to vote from 2.5% to 2.25%, that's 25bp.

Fed raises interest rates:

In order to protect the interests of depositors, banks should not use all their deposits for loans and investments, but should reserve some funds for customers to withdraw money. In the United States, these financial institutions should reserve funds (not less than a certain percentage of their short-term deposits).

This ratio is the deposit reserve ratio) In the Federal Reserve, some financial institutions have insufficient reserves and cannot reach the prescribed ratio, so they must find ways to raise funds; On the contrary, some financial institutions have higher reserves than the Federal Reserve.

There are still some surplus funds that can be taken away at any time. That's great. Banks with insufficient reserves borrow money from surplus reserves to make up for it. The short-term loan interest rate that meets the reserve requirements is the federal funds rate! This short term may only be half a day.

The Federal Reserve affects the interest rate of national funds through public operation, which is the act of putting or recycling money into the market by buying and selling government bonds. Simply put, the Federal Reserve paid dollars to buy government bonds, which increased the supply of dollars in the market; And when you sell the national debt, you get back the dollars from the market! The operation of raising interest rates is to sell government bonds, which reduces the dollar in the market and naturally increases the interest rate of borrowing!