What does the Federal Reserve primarily buy and sell to manage the economy?

The Federal Reserve primarily buys and sells government securities to manage the economy. Government securities, including Treasury bills, notes, and bonds, are essential tools used in monetary policy. By buying these securities, the Federal Reserve injects money into the banking system, which helps lower interest rates, encourage borrowing and spending, and stimulate economic growth. Conversely, selling government securities withdraws money from the banking system, which can help to increase interest rates and curb inflation.

The focus on government securities is rooted in their safety and liquidity, as they are backed by the full faith and credit of the U.S. government. This makes them a reliable asset for the Fed to use in implementing monetary policy effectively.

Other options, such as stocks, corporate bonds, real estate properties, or foreign currencies, do not serve the same purpose in the context of managing the economy. Stocks and corporate bonds are influenced by many market factors and do not provide the same level of control over interest rates. Real estate properties are not a direct monetary policy tool, and foreign currencies pertain more to international trade and foreign exchange rates rather than domestic monetary policy.