The buying and selling of securities in the open market. This is a key tool in the monetary policy.
All OMOs are handled by the trading desk at the Federal Reserve Bank in New York.
Two Types:
Permanent - outright purchases or sales of securities for the System Open Market Account (SOMA), the Federal Reserve's portfolio. Traditionally, permanent OMOs are used to accommodate the longer-term factors driving the expansion of the Federal Reserve's balance sheet, primarily the trend growth of currency in circulation.
Temporary - Temporary OMOs are typically used to address reserve needs that are deemed to be transitory in nature. These operations are either repurchase agreements (repos) or reverse repurchase agreements (reverse repos or RRPs).
Each OMO affects the Federal Reserve's balance sheet; the size and nature of the effect depends on the specifics of the operation.