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	Federal Reserve Open Market Operations and the Federal Reserve Federal Reserve System: FED Fed. Funds Rates Discount Rate Prime Rate FDIC-Federal Deposit Insurance Corporation Federal Funds Float Money Supply Full-Reserve Banking Inflation Monetary Policy Money Supply Open Market Operations and the Federal Reserve Politics v. Independence Federal Reserve Setting Rates The Federal Reserve uses both loans and purchases of certain securities to primary dealers to control how much money is in supply.  The technical term for these dealings is called "open market operations," and the primary dealers are those participants authorized by the Federal Reserve.  There is an Open Market Desk located in the Federal Reserve Bank of New York that handles all open market operations for the Federal Reserve.  The primary focus of the desk is to control the federal funds rate so that it remains close to the target rate by using repurchase agreements and outright transactions. The supply of money in the U.S. is subject to change, whether cyclical or temporary, and the Open Market Desk focuses on maintaining those changes so that they do not have abrupt impacts on the economy.  Repurchase agreements and outright transactions are used to minimize rough patches in monetary supply.  The repurchase agreements (repos) are a short-term lending situation in which the Federal Reserve will deposit money in a dealer's reserve account.  In return, the Fed will gain collateral in the form of securities.  After a period of time those securities will become mature, anywhere from 1 to 65 days, and the Federal Reserve will return the securities and charge the reserve account the interest owed.  Most often the process involves one day and 14-day repos, and they occur almost on a daily basis.   How does this transaction influence the money supply?  The increase in bank reserves during a repo means that there is a temporary rise in the money supply.  The reason it is temporary is that eventually there is a rewinding of the repo process, so the interest payment will then slightly decrease the reserves. However, the Federal Reserve will also use a reverse repo process in order to decrease the money supply.  In these cases, the Federal Reserve offers collateral in the form of Treasury Securities for loans from the primary dealers' reserve accounts.  These transactions cause the money supply to decrease.  When the loan matures, the Federal Reserve then gives the money back, plus interest, and gains back the collateral.  The accrued interest causes a minute increase in the monetary supply.   While repos are one way that the Open Market Desk controls the money supply, so are outright transactions, most commonly the secondary market purchases of Treasury securities, which have a permanent effect rather than the temporary effect caused by repos.  It may seem logical, then, that there can also be sales of these Treasury Securities, but it has not been a common practice since the 1980's.  Still, the reason that this process makes permanent changes is that there is no unwinding process at the end of the purchase or the sale; therefore, any buying or selling of the securities makes increases or decreases in the money supply lasting.