What tools can the Federal Reserve use to prevent a recession?

Betty Liu, Executive Vice Chairman for NYSE Group, explains:

What is the Federal Reserve's role in the economy?

So, the Federal Reserve is the central bank of the United States. It's an independent government institution. And it has a dual mandate. The first one is to maximize employment. And the second one is to maintain price stability. So, it has four main functions. The first one is to administer monetary policy. That is done through managing the money supply and also raising and lowering interest rates. It also supervises and regulates banks, fosters payments and services and encourages financial stability.

What tools can the Fed use to prevent a recession?

Well, the Fed has several ways, several tools that it can use to prevent a recession. But the major one is interest rates, cutting interest rates. So, the Fed can cut the benchmark Fed funds rate, that is the borrowing rate, or the lending rate that banks use. Now, if they cut that, that means that that will lower costs for companies and others and that will encourage the economy and stimulate investment.