When the Fed raises the interest rate paid on reserves, it discourages bank lending.

Name: When the Fed raises the interest rate paid on reserves, it discourages bank lending.
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When the Fed raises the interest rate paid on reserves, it makes it more attractive for banks to park their excess reserves with the Fed instead of lending them out. This can lower the overall level of bank lending, as banks have less incentive to lend to each other or to businesses and households.

When the Fed Raises the Interest Rate Paid on Reserves