One of the complicating factors the Federal Reserve faces in keeping the financial markets stable and the economy growing at a healthy but not superheated pace is the limited tools at its disposal. And none of these tools gives the Fed direct control over the end result — stable prices, stable long-term interest rates, and full employment.
For example, the Fed can’t order banks to reduce the long-term interest rates they are charging in order to stimulate borrowing, even if the Fed believes that making it easy to borrow would reinvigorate a faltering economy.
Nor can the Fed demand that banks increase their rates to slow borrowing or impose wage and price controls to put the lid on inflation. And it can’t set a limit on employment or unemployment. And nobody is suggesting that having those powers would be a good idea.
Rather, the Fed must use the tools it has to achieve its ends indirectly.
Anthony Santomero,
Federal Reserve
Bank of Philadelphia
Anthony Santomero, 
