Target Rate

See: The Fed. See: Federal Open Market Operations.

The Fed has both of its enormous, sweaty hands on the steering wheel of the economy. They are, in a sense, the driver. Need to inject gasoline or heat or speed into things? Turn the wheel to the right and lower rates. Economy inflating too hot? Turn the wheel to the left and raise rates to cool things down.

The Fed lives with a target (interest) rate it seeks to optimize, so that the economy behaves the way they want it to.

See: Fiscal Policy. See: Monetary Policy. See: Inflation.