A bond purchase is possible. The most significant and efficient approach to raise the money supply out of these three is by purchasing bonds. Bank lending must be decreased if the federal fund is to shrink the money supply.
Federal funds, often known as fed funds, are surplus reserves that commercial banks and other financial institutions deposit with regional Federal Reserve banks. These funds can subsequently be loaned to other market players that lack the necessary cash on hand to fulfill their lending and reserve needs. Since the majority of these loans are issued for the overnight period, they are unsecured and have a relatively low interest rate known as the federal funds rate or overnight rate. Commercial banks' daily reserve requirements—the sum of money they must have on hand at their local Federal Reserve—are met in part thanks to Fed funds. Each bank's reserve needs are determined by the amount of client deposits it currently has.
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