RE: Fed's open market operations

Discussion in 'Economics' started by Kramer_Hedge_LA, Mar 14, 2008.

  1. I understand how the Fed lowers interest rates (through open market operations) by buying bonds, currency, etc. from banks.

    I am curious to know what happens when the banks refuse to sell their securities to the Fed. Are the banks forced to sell their securities to the Fed? (so that the Fed can inject liquidity into the system) And if the banks won't sell, will the Fed just keep increasing the bids to a point where the banks will sell. It seems to me the banks can profit off the Fed by holding off to sell their securities until the Fed becomes desperate to pay any price for them....
  2. amylase


    banks have zero reserves

    bank draw reserves from the fed

    fed sets overnight rate on its reserves

    fed create these reserves by type it in their computer. just that simple lol
  3. From what I know the fed overnight rate is a target that can vary from the actualy rate. It is not something that automatically happens though the computer. I also know that the fed overnight rate target is reached through open market operations. I don't know where your getting your info from?
  4. Despite alternative tools were created by Fed; the fact of matter is that fed only has 2 simple and basic ways; interest rate; and money supply.

    Even the interest rate lowers to 0%; and the fed tight up the money supply; it can still make dollar worth more; (assuming population growth + productivity goes up) and contains inflation.