When the federal reserve seeks to raise the targeted federal funds rate, it sells government securities to decrease the excess reserves available for overnight loans.
Sells government securities to decrease the excess reserves available for overnight loans
A federal fund rate is a rate charged by banks to each other for overnight borrowings. The rate depends on the reserves if there is no reserve there is a demand for it so reducing reserves and increasing demand increases the rate.
The federal reserve decreases as the Fed decreases the money supply.
The money supply decreases if the Fed sells government securities and take the money from the economy and provides security documents.
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