Federal Reserve Terms Word Search
Find 10 essential Federal Reserve and monetary policy terms. Click any word to understand how the Fed shapes interest rates, inflation, and the US economy.
Economics Term
Find 10 essential Federal Reserve and monetary policy terms. Click any word to understand how the Fed shapes interest rates, inflation, and the US economy.
Study these terms before or after solving the puzzle. Each definition includes a real-world US example.
The Federal Reserve, commonly called "the Fed," is the central banking system of the United States. Established in 1913, it manages monetary policy, supervises banks, maintains financial system stability, and provides financial services.
When the Fed raised its benchmark rate from near zero to over 5% between 2022 and 2023, mortgage rates doubled from around 3% to over 7%, significantly cooling the US housing market.
Monetary policy refers to the actions taken by a central bank to manage the money supply and interest rates to achieve macroeconomic goals like price stability, full employment, and sustainable economic growth.
The Fed's aggressive monetary tightening in 2022–2023 — raising rates 11 times for 5.25 total percentage points — was the fastest monetary policy tightening cycle since the 1980s.
Tapering refers to the gradual reduction of a central bank's asset purchase program. When the Fed tapers, it buys fewer bonds each month, slowly withdrawing stimulus from the economy.
In November 2021, the Fed announced tapering its $120 billion monthly bond purchases by $15 billion per month. By March 2022, purchases had ended completely, paving the way for interest rate hikes.
Inflation is the rate at which the general level of prices rises over time, eroding purchasing power. The Federal Reserve targets approximately 2% annual inflation as the sweet spot for a healthy economy.
In 2022, US inflation hit 9.1% — the highest in 40 years. The average American family spent an estimated $700 more per month on the same goods compared to 2021.
The Fed's dual mandate is its two statutory goals: maximum employment and stable prices. When these goals conflict, the Fed must carefully balance both objectives using its available policy tools.
In 2022, the Fed faced a direct conflict in its dual mandate — inflation was at 40-year highs while unemployment was near historic lows. It chose to prioritize price stability and raised rates aggressively.
Bank reserves are the funds that banks hold in their accounts at the Federal Reserve or as vault cash. The Fed's interest rate on reserves influences how much banks hold and thus affects the money supply.
In March 2020, the Fed cut reserve requirements to zero for all US banks — the first time ever — freeing up billions in capital to support lending during the COVID-19 economic shock.
Quantitative easing (QE) is a monetary policy tool where a central bank buys large quantities of financial assets to inject money into the economy and lower long-term interest rates when short-term rates are already near zero.
The Fed deployed QE four times — after the 2008 crisis and during COVID-19 — purchasing a total of over $8 trillion in assets to keep interest rates low and support economic recovery.
US Treasury securities are debt instruments issued by the federal government. The Fed's buying and selling of Treasuries through open market operations is its primary tool for influencing the money supply and interest rates.
When the Fed raised rates in 2022–2023, the 10-year Treasury yield rose from 1.5% to over 5% — its highest level since 2007 — pushing up borrowing costs for mortgages and consumer loans.
Stagflation is a rare and challenging condition combining high inflation, slow economic growth, and high unemployment simultaneously. It creates a policy dilemma because the cure for inflation can worsen unemployment.
The 1970s stagflation was triggered by OPEC oil embargoes causing energy prices to quadruple. Inflation reached 14.8% while unemployment exceeded 9%, forcing the Fed to raise rates to 20%.
In the context of the Federal Reserve, the benchmark rate refers to the federal funds rate — the interest rate at which banks lend each other money overnight. This rate serves as the foundation for all other interest rates in the economy.
The Fed raised its benchmark rate from 0.25% in March 2022 to 5.50% by July 2023 — a total of 5.25 percentage points — to bring inflation down from its 9.1% peak.