Monetary Policy

• Facilitated by large market for extremely safe, interest-bearing assets

• Fed and Treasury closely coordinate bond auctions

• Fed conducts open market operations in secondary market

• Fed purchase of Treasury bonds from banks push bond prices up

  • Bond prices and interest rates move inversely

  • Hence, Fed purchases of bonds push interest rates down

• Fed sales of Treasury bonds to banks pushed bond prices down

  • Hence, Fed sales of bonds push interest rates up