How is the quantity of securities held by the Federal Reserve controlled?

The quantity of securities held by the Federal Reserve is primarily controlled through open market operations. This refers to the buying and selling of government securities in the open market to influence the level of reserves in the banking system and thus regulate money supply and interest rates. When the Federal Reserve buys securities, it injects liquidity into the banking system, increasing the amount of reserves that banks have. Conversely, when it sells securities, it takes money out of circulation, reducing reserves.

Open market operations are a key tool for the Federal Reserve in the conduct of monetary policy, allowing it to manage economic conditions effectively by influencing short-term interest rates and overall financial conditions. This mechanism is set within the framework of the Federal Reserve's broader goals, such as controlling inflation and promoting maximum employment.

In contrast, an annual budget of the Fed, congressional mandates, or regional reserve bank purchases do not directly govern the quantity of securities that the Federal Reserve holds. These may play a role in the overall operations and policies of the Federal Reserve but do not serve as the primary mechanism for controlling the securities in its portfolio.