Open Market Transactions:

Another tool that the Federal Reserve uses to manipulate the economy is an open market transaction. Open market transactions involve the purchasing and selling of government securities such as United States Treasuries, securities issued by federally sponsored housing and farm credit agencies such as the Federal Home Loan Bank System, the Federal Housing Administrations and the Government National Mortgage Association (GNMA).

Open market transactions usually involve the trading of several billion dollars worth of securities in any given day. Special dealers that are authorized to manage the purchase and sale process of the securities handle these transactions.

Open market transactions are directed and regulated by the Federal Open-Market Committee. This committee meets once a month to discuss current policies and outline a strategic plan to shape our economy. This committee is composed of twelve people, seven are members of the Federal Reserve board of governors, four are presidents of Federal Reserve district banks, and the last is the president of the Federal Reserve bank of New York.

When the Federal Reserve decides to sell government securities in an open market transaction they are in effect shrinking the money supply. They are taking money off the streets in exchange for a government obligation to pay. This means that there is less money in banks to lend out for real estate transactions, and the market will slow. Less money in the economy mean less money in the pockets of consumers, and less money spent on real estate. This can be a good thing if you are looking for a Like-Kind Property to complete your 1031 Tax Exchange.

When the Federal Reserve decides to buy government securities in an open market transaction they are in effect increasing the money supply. They are putting money into the pockets of government securities holders (banks) to redeem their obligations. This means that there is more money in banks to lend out for real estate transactions, which in turn can cause the market to improve. More money in the economy means more money in the pockets of consumers, and more money spent on real estate. This can be a good thing if you are looking to sell your investment property and participate in a 1031 Tenants in Common Exchange.

Open market transactions can have relatively quick impacts on current economic conditions. Due to this, serving on the Federal Open Market Committee is considered to be one of the most powerful committees in the US Government.