The Federal Reserve is the central banking system of the United States and has three primary tools for regulating the money supply in order to promote economic growth, low unemployment, and low inflation. These tools are known as open market operations (OMO), discount rate settings, and reserve requirements. Open market operations are a primary tool used by the Fed to control the supply of money in an economy. It involves buying or selling government bonds on the open market with new reserves that have been created through monetary policy decisions.

Open Market Operations (OMOs) refer to Federal Reserve purchases or sales of U.S. Treasury securities in its role as a lender of last resort for financial markets. This activity is carried out by five Federal Reserve Banks located throughout the country, under instructions from the Board of Governors which set target levels for each type of OMO transaction: permanent purchase/sales programs; Periodic Adjustment Policy transactions; and Temporary Purchase/Sales agreements with foreign banks. The goal of these transactions is to influence both short-term interest rates – such as those impacting overnight loans between banks – and longer term rates including mortgage rates tied to 10-year Treasury notes