It will, like the Bundesbank, use repurchase operations (buying securities and selling them back later) to affect interest rates.
That rate, which in turn affects interest rates on home mortgages, car loans and other consumer credit, has been at a 46-year low of 1percentt since last June.
"There are other things that affect interest rates, but point number one is where is the economy going," said Paul A. Volcker, former chairman of the Federal Reserve.
Because interest rates are important to homeowners and businesses, it is tempting to conclude that the Federal Reserve affects the economy by affecting interest rates.
But this argument rests on how government deficits affect interest rates, and the relationship between government deficits and interest rates varies.
Academics differ about just how much bigger budget deficits and higher public debt affect interest rates, but most agree that they do.
The "Mundell-Fleming" framework shows how various government policies, such as higher spending, will affect interest rates, economic output and thus, indirectly, the current account.
This would increase the cost of holding this type of asset and drive up the interest rate on it without directly affecting interest rates in the rest of the system.
The U.S. Treasury also influences the working of the monetary system through its management of the national debt (which can affect interest rates) and by changing its own deposits with the Federal Reserve banks (which can affect the volume of credit).
The Bank of England can allow such shortages or surpluses to affect interest rates, or it can offset them by buying or selling bills or by lending overnight to the discount houses at market rates.
