The Federal Reserve & OMOs

The Fed is the central banking system of the United States. Its duties today are to conduct the nation’s monetary policy, supervise and regulate banking institutions, maintain the stability of the financial system and provide financial services to depository institutions, the U.S. government, and foreign official institutions.

Monetary policy is conducted by the Federal Open Market Committee (FOMC), which meets 8 times a year, or about every 6 weeks, in which they make decisions regarding Open Market Operations (OMOs). The FOMC consists of the 7 members of the Board of Governors, and the presidents of the 5 Federal Reserve District Banks including the New York Fed.

The Fed’s dual-mandate states that the primary responsibilities include controlling inflation as well as stabilizing economic activity.

Open Market Operations

OMOs are how the Fed controls the monetary base by the buying and selling of government bonds.

  • If the Fed wants to increase the monetary supply, they will buy government bonds to the public
    • The Fed gets the bonds, and the economy gets the money.
  • If the Fed wants to decrease the monetary supply, they will sell government bonds to the public
    • The economy gets the bonds, and the Fed gets the money (thus, pulling it out of the economy).

Leave a Reply

Your email address will not be published. Required fields are marked *