How does the Federal Reserve's buying and selling of securities relate to the borrowing decisions of the federal government?
The monetary policy decisions of the Federal Reserve are made independently of the borrowing decisions of the federal government and are intended solely to fulfill the mandate set out for the Federal Reserve by law--maximum employment, stable prices, and moderate long-term interest rates.
The Federal Reserve purchases Treasury securities held by the public through a competitive bidding process. The Federal Reserve does not purchase new Treasury securities directly from the U.S. Treasury, and Federal Reserve purchases of Treasury securities from the public are not a means of financing the federal deficit.
In financing the federal deficit, the federal government borrows from the public by issuing Treasury securities which are sold at auction according to a schedule that is published quarterly. The Treasury determines the types and amounts of Treasury securities sold at auction with the goal of achieving the lowest financing costs for the federal government over time. The Federal Reserve does not participate in competitive bidding at Treasury auctions, and the Treasury's debt management decisions are not influenced by the Federal Reserve's purchases of Treasury securities in secondary markets.