Money & Finance › The Fed, money supply & inflation › The federal funds rate
Open market operations
· Concept
Fact, law or dataA rule, statute, definition or measured number.
Open market operations are the Fed's purchases and sales of Treasury securities, used to add or drain bank reserves.
See it on the Money & Finance map →How it works
The New York Fed's trading desk buys or sells securities with large dealer banks. When it buys, it pays by crediting reserves to banks, adding money to the system and pushing short rates down; selling does the reverse. Before 2008 small daily trades kept the fed funds rate on target. Since QE flooded banks with reserves, the Fed sets rates through interest on reserves instead, and uses large purchases (QE) or runoff (QT) to shape longer rates. QT ended in December 2025.
Why it matters
They are how the Fed actually creates or removes reserves. QE and QT are open market operations at huge scale, moving bond yields and mortgage rates.
Facts, rules and data
The New York Fed publishes every operation and the holdings of its System Open Market Account; FOMC directives set its instructions after each meeting.
Debates and risks
How many reserves the banking system needs to stay 'ample' is uncertain; a September 2019 spike in repo rates showed the Fed had misjudged it.
Connections (2)
▸Open market operations were the classic tool for steering The federal funds rateFact, law or data
The connection
Before 2008, reserves were scarce. Buying Treasuries added reserves, so banks had spare cash to lend overnight and the fed funds rate fell; selling drained reserves and pushed it up. The New York desk did this daily. Since 2008, interest on reserves sets the rate, and open market operations mainly manage the balance sheet.
When and why
The New York Fed's trading desk, running open market operations since the 1920s under FOMC direction from the mid-1930s; the fed funds rate became its main target in the decades before 2008.
How we know
Fed histories and operations data show the daily trades keeping the rate near target; the Fed formally adopted its 'ample reserves' system in 2019.
Debates and risks
Whether the Fed should return to a smaller balance sheet with scarce reserves, steering rates through daily trades again, is debated.
▸Open market operations buy and sell US Treasury securitiesFact, law or data
The connection
The New York Fed's trading desk carries out policy mostly by trading Treasuries with big dealer banks. When it buys, it pays by crediting bank reserves, adding money and pushing yields down; when it sells, or lets holdings mature, it drains reserves. Since December 2025 it has been buying T-bills again to keep reserves ample.
When and why
The New York Fed's open market desk, trading with about two dozen 'primary dealers'; holdings sit in the System Open Market Account (SOMA).
How we know
The New York Fed publishes the results of every operation, and the weekly H.4.1 report shows the Fed's Treasury holdings.
Debates and risks
How much the Fed's huge Treasury holdings hold down long-term yields, and whether they blur the line between monetary policy and financing deficits, is debated.