Open Market Operations

Open market operations are one of three basic tools used by the Federal Reserve to reach its monetary policy objectives. The other tools are changing the terms and conditions for borrowing at the discount window and adjusting reserve requirement ratios. The execution of OMOs in the "open market"—also known as the secondary market for securities purchases—is the Federal Reserve's most flexible means of carrying out its objectives. By adjusting the level of reserve balances in the banking system through open market operations, the Fed can offset or support permanent, seasonal or cyclical shifts in the supply of reserve balances and thereby affect short-term interest rates and, by extension, other interest rates.