If the economy is growing too quickly state how the FED slows down the economy?

Answer 1

The Fed has two tools: 1) raising a certain interest rate it controls, called the "discount rate", and 2) selling US treasury bonds to banks.

The purpose of both actions is to reduce the growth in the money supply. Since banks lending money is what causes money-creation, the Fed works to discourage banks from lending money somewhat.

The discount rate comes into play when banks, needing liquidity, borrow short term from the Fed. Tweak the rate up a bit, and banks will be a little less willing to borrow. And if they do, they'll demand higher interest on the loans THEY lend out to the public, which will reduce the amount of new loans taken out (which in turn slows growth of money supply).

Secondly, the amount of loans a bank can create is based on how much money it has in reserve -- so if the Fed encourages a bank to exchange money for a treasury bond, then bank will then have less lending capacity. A bank can lend out money, but not a treasury bond. IE, the Fed uses bonds to absorb liquidity from the banking system, which again reduces the amount of loans taken out, which slows the growth of the money supply.

Answer 2

I reject the premise of your question.

The FED has nothing but best wishes for the economy, and want it to grow was fast as possible, as long as that growth is sustainable and not inflationary (which it almost always is not)

Growth in an economy can come from better productivity increasing supply, or by more demand forcing more supply.

If productivity is the cause of the economy growing, this actually creates downward inflation pressures, and the FED would sit back and enjoy the growth.

If its demand forcing more supply, it will grow the economy, slightly, but cause massive inflation, that would hurt the economy down the road. In this regard the FED will do all the things previously outlined to lower the inflationary pressure of the economy, and return it to a more sustainable state.

Answer 3

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Answer 4

By raising the interst rate, no?

Answer 5

adjust the interest rate upwards.