Essay - Open Market Operations of the Federal Reserve System I) Functions...

Open Market Operations of the Federal Reserve System

I) Functions ***** the Federal Open ***** Committee (FOMC)

***** many Americans, it may appear that U.S. monetary policy is ***** work of one man, Alan Greenspan, Chairman, Board of Governors of the Federal Reserve Board ("The Fed"). But ***** ***** only because Dr. Greenspan, while certainly an extremely powerful and influential person, is just the most v*****ible ***** a number of powerful and influential individuals serving on important boards. In the background, out of the limelight, are many other key players, including members of the Federal ***** market ***** (FMOC) (which Dr. Greenspan also chairs).

What are the short-term functi*****s of the "open market operations" ***** the FOMC? Basically, ***** FOMC sells ***** purchases U.S. Treasury securities, and securities from federal agencies. This is an important series of tasks, since these transactions ***** the primary tools for implementing ***** policy established by the Federal Reserve. The primary immediate goal of "***** market operations" is to maintain a desired qu*****ntity of financial reserves, at a desired price, ***** is determined as the "federal funds rate." And ***** "federal ***** rate" is the interest rate at which banks and ***** ***** institutions lend balances at the Federal ***** - ***** other "depository institutions" around the country through overnight transactions at ***** ***** Reserve.

What are the overall key functions of the FOMC? The 12*****member policy-making committee meets eight times a year (*****ir regularly scheduled sessions) to c*****fully scrutinize current economic and financial conditions in the country. Then, at those sessions, the FOMC determines ***** most appropriate plan ***** ongoing U.S. m*****tary policy, ***** also evaluates what risks there may be to the economic picture. If important or crisis-related monetary issues come up between the regularly scheduled meetings, the board ***** be called ***** an emergency session, *****, be linked on a "conference c*****ll" to review and make decisions.

***** the FOMC is the ***** important policy-making arm of ***** Federal Reserve, ***** makes decisions to advance the long-run objectives of "price stability and sustainable ***** growth," according to ***** Federal Reserve's Web site. Basically, big picture of the FOMC's role is one of stimulating the economy, promoting strong economic growth, assuring that employment ***** strong (near as possible to full employment), setting ***** cost ***** availability of credit, and also, to direct ***** operations in foreign currencies.

How are the FOMC activities coordinated with the Department ***** Tre*****ury on a daily basis? The ***** policies directly affect the sale ***** purchase of U.S. Treasury securities. And since Federal Reserve *****s of U.S. Treasury ***** add ***** reserves, and Federal Reserve sales withdraw from the federal ***** system, there is daily interacti***** ***** the U.S. Treasury and FOMC staff.

***** ***** the function of the "Desk" at the ***** Reserve Bank of NY? Each day, pr*****essionals at ***** Domestic Trading ***** must make a decision: whether *****n open market operation is needed and, if it is, ***** the ***** market operation should be an