Inflation is the rise in the price of goods and services supplied in an economy.
As a monetary policy action, the federal reserve will increase the federal funds rate in order to reduce the flow of money supply to the economy. In other words, by making it more expensive for entities to borrow money, this will consequently reduce the amount of money that is circulating in the streets. By rule of supply of demand, as there is less money to buy products and services, the prices of goods and services will start to drop.
