What are open market operations?

Open market operations are are the Federal Reserve’s most flexible and frequently used means of implementing U.S. monetary policy.1 Monetary policy is generally the goal of the Federal Reserve to achieve:

  • “maximum” sustainable output and employment
  • “stable” prices.

The affect of open market operations was “stubled upon” by the Federal Reserve. They are used by the federal reserve to purchase U.S. Treasury securities and/or mortgage backed securities or sell already purchased securities of the same type in order to affect the amount of bank reserves. The ultimate affect of this buying and selling is to influence interest rates. I’ll also look at how this buying/selling helps to achieve maximum sustainable output and employment as well as stable prices.

Written on September 8, 2016