Core Viewpoint - The Federal Reserve's ability to pay interest on reserves allows it to inject liquidity when necessary without compromising interest rate control [1] Group 1 - The payment of interest on reserves is a strategic tool for the Federal Reserve to manage liquidity in the financial system [1] - This mechanism enables the Federal Reserve to respond effectively to market demands while maintaining its monetary policy objectives [1] - The approach helps to stabilize the banking system by providing banks with an incentive to hold reserves [1]