BIS Review 18/2008  5  disruption and generates a further deterioration in macroeconomic activity (Mishkin, 2007c, 2008). Monetary policy – that is, the management of the target federal funds rate – is the Federal Reserve's best tool for influencing the course of economic activity and mitigating the degree of macroeconomic risk.
Tool #4: Changing the federal funds rate target to respond to macroeconomic risk In the speech on risk management that I gave last month, I outlined a systematic approach for coping with financial market disruptions (Mishkin, 2008).