When necessary, the Fed changes the stance of monetary policy by raising or lowering its target range for the federal funds rate, an interest rate for overnight borrowing by banks. These changes affects the spending decisions of households and businesses and have implications for economic activity, employment, and inflation.
Lowering that target range represents an “easing” of monetary policy because it is accompanied by lower short-term interest rates in financial markets and a loosening in broader financial conditions. This may be needed if the economy is sluggish or inflation is too low.
On the other hand, raising the target range represents a “tightening” of the monetary policy, which raises interest rates and may be necessary if the US economy is overheating or inflation is too high.