Open market operations

Open market operations are the routine buying and selling of government securities that the Federal Reserve uses day to day to keep the federal funds rate within its target range. When the Fed buys securities, it adds reserves to the banking system, which pushes the rate banks charge each other lower. When it sells securities or lets them roll off, it drains reserves from the system, pushing the rate higher.

This is the ordinary, continuous mechanism the Fed uses to keep the actual rate banks charge each other trading close to the target the FOMC sets at its meetings, distinct from quantitative easing, which involves buying securities in far larger amounts over an extended period specifically to push down longer-term rates and add liquidity during a period of economic stress, well beyond what routine open market operations are meant to do.

Open market operations happen constantly in the background and rarely make headlines on their own, but they are the plumbing that keeps the interest rate the Fed announces at each meeting reflected in the rate banks charge one another.