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Board of Governors of the Federal Reserve System
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Current FAQs
Informing the public about the Federal Reserve

Why doesn't the Federal Reserve just buy Treasury securities directly from the U.S. Treasury?

The Federal Reserve Act specifies that the Federal Reserve may buy and sell Treasury securities only in the "open market." The Federal Reserve meets this statutory requirement by conducting its purchases and sales of securities chiefly through transactions with a group of major financial firms--so-called primary dealers--that have an established trading relationship with the Federal Reserve Bank of New York (FRBNY). These transactions are commonly referred to as open market operations and are the main tool through which the Federal Reserve adjusts its holdings of securities. Conducting transactions in the open market, rather than directly with the Treasury, supports the independence of the central bank in the conduct of monetary policy. Most of the Treasury securities that the Federal Reserve has purchased have been "old" securities that were issued by the Treasury some time ago. The prices for new Treasury securities are set by private market demand and supply conditions through Treasury auctions.

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Last update: August 2, 2013