Why does the Federal Reserve purchase Treasury securities?
The Federal Reserve The central bank of the United States. It is responsible for the conduct of monetary policy. buys and sells marketable Treasury securities in the secondary market to conduct monetary policyThe use of reserve requirements, discount rates, and purchases and sales of Treasury securities (open market operations) by the Federal Reserve (the nation's central bank) to affect the rate of growth of the nation's money supply. The goals of monetary policy are to promote maximum employment, stable prices, and moderate long-term interest rates. in what are called "open market operations." The Federal Reserve adds reserves to the banking system by buying securities and drains reserves from the system by selling securities. Open market operations generally target the federal funds rate—the rate at which banks lend to one another on an overnight basis—thereby influencing short-term interest rates. The Federal Reserve typically purchases short-term Treasury securities for this purpose. During the recent financial crisis, the Federal Reserve also began purchasing longer-term Treasury securities in an effort to spur economic growth and other financial instruments to stabilize financial markets.
Treasury securities are attractive for open market operations because the market for these securities is broad and highly active. Consequently, the market can accommodate the Federal Reserve's transactions without disruption. The Federal Reserve Bank of New York posts information about the security holdings acquired via open market operations, http://www.newyorkfed.org/markets/soma/sysopen_accholdings.html.