Open market operations

Definition

Open market operations involve the buying and selling of government securities by the Federal Reserve to control the money supply and influence interest rates. It is a primary tool used by the Federal Reserve to achieve its monetary policy objectives.

Related terms

Monetary Policy: The process by which a central bank (like the Federal Reserve) manages a country’s money supply and interest rates to achieve macroeconomic objectives such as controlling inflation, consumption, growth, and liquidity.

Interest Rates: The cost of borrowing money typically expressed as an annual percentage of the loan amount; controlled by central banks to influence economic activity.

Government Securities: Financial instruments issued by the government to finance its fiscal deficits and are bought and sold during open market operations