Open market operations (OMOs) are still part of the Fed’s toolkit. However, they are not the primary tool. There are two ways OMOs are used. First, in normal, day-to-day activities, there are forces in the economy that slowly drain reserves from the banking system. The Fed monitors the level of reserves and, when deemed appropriate, conducts OMOs (where it purchases securities and injects reserves into the banking system) to keep the level ample. Second, in times of severe stress, the Fed may do large-scale asset purchases, where sizable purchases of securities assist with financial stability and put downward pressure on longer-term interest rates. The Fed took this action during both the Global Financial Crisis (GFC) and COVID-19 pandemic.
OMOs are a long-standing tool of the Fed. They were the key tool used before the GFC, when the Fed implemented policy with limited reserves. Today and going forward, periodic OMOs are an important tool in the ample reserves framework the Fed has chosen to maintain for its operations.