Open Market Operations

Summary of Open Market Operations

A principal vehicle of the Federal Reserve system in expanding or contracting bank reserves. The Federal Open Market Committee, consisting of the entire Board of Governors of the Federal Reserve system, plus representatives of five of the twelve regional Federal Reserve banks (the New York Federal Reserve is permanently represented; the other four memberships rotate), engages the purchase and sale of U.S. government and Federal agency obligations and, to a lesser extent, bankers acceptance. The sale by the Federal Reserve of such obligations removes money from circulation; conversely, by purchasing such obligations, the Federal Reserve pays out money, which becomes bank deposits and reserves, available for creation of credit and monetary expansion.

(Main Author: William J. Miller)