TYPICAL MORNING’S WORK AT THE OPEN MARKET TRADING DESK

The following is an overview of activity at the Open Market Trading Desk at the
Federal Reserve Bank of New York.

7:00 A.M. The account manager receives from the research staff an estimate of the supply of reserves for that day and for the remaining days of the current maintenance period. The maintenance period is the two week period over which the Fed calculates banks’ required reserve balances.

8:00 A.M.–9:00 A.M. The account manager begins informal discussions with market participants to assess conditions in the government securities market. From these discussions and from data supplied by the staff of the FOMC, the account manager estimates the demand for reserves and how the prices of government securities will change during the trading day.

The account manager’s staff compares forecasts on Treasury deposits and information on the timing of future Treasury sales of securities with the staff of the Office of Government Finance in the Treasury Department. These Treasury activities can affect the level of bank reserves and the monetary base.

9:10 A.M. After reviewing the information from the various staffs, the account manager studies the FOMC’s directive. This directive identifies the level of the federal funds rate desired. The account manager must design dynamic open market operations to implement changes requested by the FOMC and defensive open market operations to offset temporary disturbances to reserves as predicted by the staff. The account manager places the daily conference call to at least two members of the FOMC to discuss trading strategy.

9:30 A.M. On approval of the trading strategy, the traders at the Federal Reserve Bank of New York notify the primary dealers in the government securities market of the Fed’s desired transactions. If traders plan to make open market purchases, they request quotations for asked prices. If traders plan to make open market sales, they request quotations for bid prices. (Recall that the asked price is the price at which a dealer is willing to sell a security, and the bid price is the price at which a dealer is willing to buy a security.)

9:40 A.M. The primary dealers submit their propositions to the trading desk.

9:41 A.M. The trading desk selects the lowest prices offered when making purchases and accepts the highest prices when making sales and returns the results to dealers.

10:30 A.M. By this time, the transactions have been completed and the trading room at the Federal Reserve Bank of New York is less hectic. No long coffee breaks or threemartini lunches for the account manager and staff, though, because they are busy the rest of the day monitoring conditions in the federal funds market and the level of bank reserves to get ready for the next day of trading.

Source: Adapted from "A Morning at the Desk" from Implementing Monetary Policy: The Federal Reserve in the 21st Century by Christopher Burke. Federal Reserve Bank of New York, January 13, 2010.