how does the federal funds rate affect banks 
financial institutions typically base interest rates for consumer and business loans on the federal funds rate for example as the fed conducts omos that raise or lower the fed funds rate banks and credit card companies will change their rates accordingly the bottom linein open market operations the federal reserve buys or sells securities on the open market to raise or lower interest rates they are one of the tools that the fed has at its disposal to boost or slow down the country s economic activity by engaging in open market operations the fed injects or drains funds from the nation s money supply open market operations can be permanent or temporary the permanent type of omo involves the outright purchase or sale of securities temporary omos involve buying or selling securities with the agreement to reverse the transaction in the near future 