The Federal Reserve plays a vital role in economic policy by managing the money supply and influencing interest rates. Through tools such as open market operations, the discount rate, and reserve requirements, it seeks to achieve objectives like maximum employment, stable prices, and moderate long-term interest rates. The Fed responds to economic fluctuations by adjusting these variables to stimulate growth or curb inflation. In essence, its actions impact credit availability, consumer spending, and overall economic stability, thus serving as a cornerstone of American economic policy.