What is an example of an open market transaction conducted by the Federal Reserve?

An open market transaction conducted by the Federal Reserve primarily involves the buying and selling of government securities, which is a fundamental tool for implementing monetary policy. When the Federal Reserve sells government securities, it reduces the reserves in the banking system, which can lead to a tightening of money supply and can impact interest rates. This action is typically aimed at controlling inflation and stabilizing the economy.

In contrast, purchasing mortgage-backed securities is related to specific economic conditions and does not represent a traditional open market operation of government securities. Issuing new currency refers to the physical creation of money, which is a function of the Federal Reserve but does not fall under open market operations. Setting interest rates involves policy decisions that may indirectly influence open market transactions but is not itself an open market transaction. The essential aspect of open market operations is the direct buying and selling of government securities, exemplified by the choice related to selling government securities.