loor requirement, the FED will sell securities to the market in order to bring the Federal funds rate back up to the desired level (See Figure 2). Part VOther factors affecting open market operationsThe trading desk relies heavily on temporary reserve operations to deal with uncertainties in the market. An example of these uncertainties is the enormous drain on reserves during the holiday shopping season. Since consumers tend to carry more cash during this period, reserves are drained. To offset this drain on reserves, the FED buys securities, in order to bring reserves back to normal levels. After the holiday season passes, the FED will reverse their previous operations, and sell securities back to the market, to offset the increasing reserves due to consumers depositing more cash back into their bank accounts.Another example is the movements in Treasury balances. Since the Federal Reserve Bank is the banker for the U.S. Treasury, they must monitor the Treasury's balances as tax receipts are deposited in the tax and loan accounts at commercial banks. These deposits increase reserves, and therefore, must be offset by the FED. Similarly, when the U.S. Treasury transfers balances from these tax and loan accounts, to their account with the FED, as they would do if they plan on spending the funds, reserves are depleted. The FED offsets this drain on reserves with temporary open market operations.Changes in the Federal Reserve Float, also requires action by the FED using open market operations. Most households and businesses use checks drawn on their bank accounts to pay a major portion of their payments. The FED's national check clearing system facilitates the flow of checks around the country. The reserve bank credits the Bank's reserve account at the FED for checks deposited (or presented for collection), by the bank and debits its account for checks drawn on it and presented by other banks. When a presenting bank's reserve ac...
