The way that the Fed would respond to an exogenous decrease in the velocity of money, is to engage in Expansionary Monetary Policy .
By adding money to the economy, either through higher lending to firms and consumers or by direct government deficit spending, expansionary policy aims to encourage company investment and consumer spending.
Short-term interest rates are lowered or the money supply is increased more quickly than usual as a result of expansionary monetary policy. It is implemented by central banks and accomplished through interest rate setting, reserve requirements, and open market activities.
When the benchmark federal funds rate or discount rate is lowered, the minimum reserves required of banks are lowered, or Treasury bonds are purchased on the open market, the U.S. Federal Reserve is implementing expansionary policies.
The Federal Reserve would have to use expansionary monetary policy when there is an exogenous decrease in the velocity of money, because output would have fallen and there would be a need to boost production.
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