The textbook I’m reading says that the reserve ratio is like the biggest “tool” that the fed has. They are increasing interest rates, but then they are having the reserve ratio at 0% and they are engaging in reverse repo to make sure that banks have plenty of cash. I don’t get it.
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Capital reserve requirements are a much better tool than interest rate hikes to control inflation (growth in the money supply). In effect, they make it more expensive to lend, instead of making it more expensive to borrow. Accomplishes the same effect, while leaving interest rates low(and therefore not punishing those with existing debts)
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