Open-market Operations

Central bank purchases or sales of government or private securities.

In the U.S. open-market operations result when the Federal Reserve Bank (the Fed) buys and sells government debt. The Fed owns a significant amount of the national debt, and it sells a portion of that reserve of bonds when it wants to get money out of the system. It buys bonds when it wants to add to the money that is in circulation. When the Federal Reserve buys bonds it increases the amount of money that banks and other financial institutions can loan. The increase in the supply of loanable funds decreases the interest rate.