[pas]

Very oversimplified is that the Fed is basically nowadays does "NGDP targeting" with a huge emphasis on as close to full employment as possible.

If the Fed would "pay back" its liabilities (loans), almost all money would disappear. (AFAIK there are some old legal tenders that are not Fed issued.) The central bank is there to supply the money needed to maintain a steady money supply. It's designed to hold that debt.

The basic formula is MV=PQ (money supply * velocity of money = price * quantity). As the economy expands it's natural that it needs more money to maintain the same price level. The central bank then targets a slight increase in prices (to have the steady ~2% inflation) and issues money accordingly.

The Fed transitioned to a zero fraction regime on 2020 March ( https://www.federalreserve.gov/monetarypolicy/reservereq.htm ) It was an unused tool anyway. Now the Fed uses interest on reserves (IOR) and discount rate to guide the fundamental rate. (Discount rate is the rate at which the Fed gives a loan. IOR is the minimum rate, literally free money from the central bank, discount is the maximum of the range. Banks call each other up to get loans, obviously they will ask for rates above the IOR/free-money rate.)

https://research.stlouisfed.org/publications/page1-econ/2020...

https://en.wikipedia.org/wiki/Money_supply#Link_with_inflati...