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How Central Banks Use Open Market Operations to Steer the Economy
Description
In this episode, Lucas and Luna dive into the mechanics of open market operations—the most frequently used tool in central banking. They break down how the Federal Reserve buys and sells Treasury securities to influence the federal funds rate, using the specific example of the 2023 run-up in interest rates. Lucas explains how the Fed's $1.1 trillion repo facility works as a backstop, and Luna challenges whether smaller central banks like the Bank of Canada can achieve the same results with fewer liquid bond markets. The hosts also touch on the shift from scarce to ample reserves and why portfolio composition matters more than ever in 2026. No jargon left unexplained. If you've ever wondered how the Fed actually changes the price of money day-to-day, this is your explainer.