How does the Fed create money using the open-market operation?
The Federal Reserve Board is the central bank of the United States, charged with creating the environment necessary for long-term economic growth. To do this, the Federal Reserve engages in open-market operations to create money in the economy.FOMC MeetingsThe Federal Open Market Operations Committee (FOMC) meets approximately every six weeks to deliberate on the U.S. economy and weigh economic forecasts. The 12 members of the committee then vote to decide whether or not to create more money in the economy.Domestic Trading DeskTo create money, the FOMC first orders the Domestic Trading Desk in New York City to buy securities.Bank CreditTo pay for the securities, the Fed credits the account of each bank that has an account with the Federal Reserve.BanksAs a result, banks have an excess of available funds with which to lend or invest. By putting these excess funds to work, the supply of money increases.Interest RatesWith more money circulating in the economy, the interest rate on bank-to
