A frequent criticism of monetary policy is that it tends to be reactive. Fed policy is determined by members of the Federal Reserve, who are all political appointees. Even if political concerns were not an issue, increasing or reducing the money supply in the economy is a slow process that stretches out over several months, and previous decisions often leave the Fed unable to pivot in response to new market factors. The Fed’s first recourse to reducing the money supply is to increase the discount rate — the interest rate that Fed charges when it makes overnight collateralized loans to depository institutions. The increased discount rate subsequently impacts the federal funds rate, which is the interest rate that depository institutions — banks, savings and loans, and credit unions — charge each other for overnight loans. Finally, this peters down to corporations and consumers who now have to pay higher interest rates to borrow from depository institutions, making debt less attractive.