PERMANENT OPEN MARKET OPERATIONS (POMO)

The Fed influences short term interest rates by controlling the interbank lending rate known as the Fed funds rate.  Through its Open Market Operations (OMO), it purchases (adds reserves) and sells (drains reserves) short term repurchase agreements (RPs) with dealers in Treasuries by the Trading Desk of the Federal Reserve Bank of New York to maintain just enough reserves to the banking system to meet the target rate demand.

Permanent Fed reserve additions/drains (POMO) is just one of three tools used by the Federal Reserve to implement monetary policy.  The other two are the discount rate and reserve requirements. Open market operations are conducted by the Federal Open Market Committee (FOMC), while the discount rate and reserve requirements are set by the Federal Reserve's board of governors.