Open market operations.

In plain English

Open market operations are the Fed's main day to day tool: when it buys securities from dealers it adds reserves to the banking system, and when it sells or lets holdings run off it drains them. More reserves push the overnight rate banks charge each other down, fewer reserves push it up. The trades happen with primary dealers rather than with the Treasury directly, so this is secondary market activity. Operations can be permanent purchases or temporary agreements that reverse in days. The target rate itself is decided by the policy committee, and the desk trades to keep the market rate inside that range.

01Why it matters

The overnight rate set through these operations is the anchor for card rates, adjustable mortgages, savings yields, and business credit lines, so a technical trading desk in New York sets the floor under nearly every rate you see.

02The math, step by step

Say the desk buys $1 billion of Treasury securities from dealers. Bank reserves at the Fed rise by $1 billion, and with more cash chasing the same overnight market, the rate drifts down. Selling $1 billion pulls those reserves back out and pushes the rate up.

Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.

03What this is NOT

04Receipts

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