Permanent Open Market Operations - POMO

AAA

DEFINITION of 'Permanent Open Market Operations - POMO'

When the Federal Reserve buys or sells securities outright in order to permanently add or drain the reserves available to the U.S. banking system. Such permanent open market operations are the opposite of temporary open market operations, which are used to add or drain reserves available to the banking system on a temporary basis, thereby influencing the federal funds rate. Permanent open market operations are just one of the tools used by the Federal Reserve to implement monetary policy.

INVESTOPEDIA EXPLAINS 'Permanent Open Market Operations - POMO'

Open market operations are one of the three tools used by the Federal Reserve for implementing monetary policy; the other two are the discount rate and reserve requirements. Open market operations are conducted by the Federal Open Market Committee (FOMC), while the discount rate and reserve requirements are set by the Federal Reserve's board of governors.

Open market operations significantly influence the amount of credit available in the banking system. When the Federal Reserve buys securities from banks, it adds liquidity to the banking system, pushing interest rates lower. The proceeds from the sale of these securities can be used by banks for lending purposes, thereby stimulating economic activity. Conversely, when the Federal Reserve sells securities to banks, it drains liquidity from the banking system, pushing interest rates higher. Banks have a lower amount of funds to lend, which acts as a brake on economic activity.

The FOMC may occasionally have a different operating goal for its open market operations. For instance, in 2009, it announced a longer-dated Treasury purchase program as part of its permanent open market operations. The objective of this program was to help improve conditions in private credit markets after an unprecedented credit crunch gripped global financial markets in 2008 and 2009.

RELATED TERMS
  1. Federal Funds Rate

    The interest rate at which a depository institution lends funds ...
  2. Federal Open Market Committee - ...

    The branch of the Federal Reserve Board that determines the direction ...
  3. Open Market Operations - OMO

    The buying and selling of government securities in the open market ...
  4. Discount Window

    Credit facilities in which financial institutions go to borrow ...
  5. Ben Bernanke

    The chairman of the board of governors of the U.S. Federal Reserve. ...
  6. Wall Street Journal Prime Rate

    An interest rate that large banks in the United States charge ...
Related Articles
  1. Personal Finance

    How The U.S. Government Formulates Monetary Policy

    Learn about the tools the Fed uses to influence interest rates and general economic conditions.
  2. Forex

    How do open market operations affect the U.S. money supply?

    Formulating a country's monetary policy is extremely important when it comes to promoting sustainable economic growth. More specifically, monetary policy focuses on how a country determines the ...
  3. Bonds & Fixed Income

    The Fed's New Tools For Manipulating The Economy

    The economy can be volatile when left to its own devices. Find out how the Fed smoothes things out.
  4. There are many ways to rank the word's most powerful companies. Looking at market value, brand value or sales revenue are all methods used to rank the biggest companies in the world.
    Economics

    Most Powerful And Influential Public Companies In 3 Metrics

    There are many ways to rank the word's most powerful companies. Looking at market value, brand value or sales revenue are all methods used to rank the biggest companies in the world.
  5. A look at China's plan to control population growth and how it could change going forward.
    Economics

    China's One-Child Policy Explained

    A look at China's plan to control population growth and how it could change going forward.
  6. Economics

    What's the highest year-over-year inflation rate in the history of the U.S.?

    Learn about periods with the highest inflation in U.S. history and the mandated role of the U.S. Federal Reserve in controlling inflation.
  7. With the second-largest economy in the world, China has significant (and growing) influence on the global economy. But how is that impact figured?
    Economics

    A Look At China's Growing Influence On The World

    With the second-largest economy in the world, China has significant (and growing) influence on the global economy. But how is that impact figured?
  8. Quantitative easing in Europe is coming, but too slowly to avert a severe slowdown and perhaps even a hard landing.
    Economics

    How Is Europe Affecting The Martkets?

    Quantitative easing in Europe is coming, but too slowly to avert a severe slowdown and perhaps even a hard landing.
  9. If you're considering investing in China and want to know when to buy, sell, hold or stay away, consider these economic indicators.
    Economics

    Eyeing China? Consider These Economic Indicators

    If you're considering investing in China and want to know when to buy, sell, hold or stay away, consider these economic indicators.
  10. Economics

    What are the main components of the Federal Reserve's balance sheet?

    Find out which items are listed as assets and liabilities on the balance sheet of the Federal Reserve, and how to read the Fed's weekly financial report.

You May Also Like

Hot Definitions
  1. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  2. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
  3. Simple Interest

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
  4. Special Administrative Region - SAR

    Unique geographical areas with a high degree of autonomy set up by the People's Republic of China. The Special Administrative ...
  5. Annual Percentage Rate - APR

    The annual rate that is charged for borrowing (or made by investing), expressed as a single percentage number that represents ...
  6. Free Carrier - FCA

    A trade term requiring the seller to deliver goods to a named airport, terminal, or other place where the carrier operates. ...
Trading Center