The Federal Reserve sets monetary policy with a mandate to pursue both stable prices and maximum employment. Those goals can conflict, and the tools used to pursue them affect borrowing costs, asset prices, and jobs unevenly across the population.
The Fed influences the economy primarily by setting a target for short-term interest rates and by expanding or shrinking its balance sheet. Higher rates slow borrowing and spending; lower rates encourage them.
Inflation can come from demand outpacing supply, from supply disruptions, from expectations becoming self-fulfilling, or from a combination. The diagnosis matters, because interest rates address demand more directly than supply.
The Fed is deliberately insulated from direct political control, with governors serving long terms. That independence is defended as protection against short-term political pressure and criticized as a lack of democratic accountability over consequential decisions.