Open Market Operations

Paper Summary:

This paper presents a brief history and overview of the U.S. Federal Reserve's long-time strategy of using interest rate targeting, through open market operations, to keep the economy in a state of equilibrium. The paper explains this strategy, looks at the likelihood of it continuing as the strategy for regulating the U.S. economy, and explains why the open market operations method has been the strategy of choice for some time now.

Long history of FOMC Voting Behavior: Personality preference?
Shrinking Government Debt and the Wisdom of the Open Market
Operations Policy
Looking for a 'Fail Safe' Maneuver
Deductive Reasoning: The Policy Works Because it Works
Conclusion

From the Paper:

"Today, open market operations (purchase and sale of U.S. Treasury and other federal agency securities) are the principal tool used by the Federal Reserve in implementing monetary policy (Federal Reserve Web site). The Federal Open Market Committee (FOMC) of the Federal Reserve decides on the short-term objective, an objective that can be either a desired quantity of reserves of a desired price, also called the federal funds rate; this, in turn, will have the effect of making interest rates increase or decrease. "The federal funds rate is the interest rate at which depository institutions lend balances at the Federal Reserve to other depository institutions overnight" (Federal Reserve Web site), which allows it to either slow down or heat up the economy, but at a slight remove from the direct action of other actions, such as manipulating the discount rate."

More papers on Open Market Operations:

• Essay # 23791 : "Open Market Operations of the Federal Reserve System"
• Analytical Essay # 72113 : "Open Market Alternatives"
• Essay # 37707 : "Open Market Operations"

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