FOMC Minutes Excerpt: Plan to Phase Out Repo Operations>

     WASHINGTON (MNI) - The following is an excerpt of the Federal Open 

Market Committee minutes describing committee's policy action, 

published Wednesday for the January meeting: 

     Since year-end, money market rates remained stable, with the Desk's 

longer-term repos maturing with no discernible effect on market 

conditions and reserve management purchases of Treasury bills proceeding 

smoothly.  At the current pace of $60 billion per month, the staff's 

estimates suggested that after April of this year, the Desk's reserve 

management purchases will restore the permanent base of reserves to 

levels above those prevailing in early September 2019.  Although 

reserves are projected to be above $1.5 trillion before April, a surge 

in the Treasury General Account balance during the April tax season is 

expected to briefly reduce reserve levels and, in the absence of repo 

operations, bring reserves down temporarily to around $1.5 trillion.  

     The manager discussed a potential plan for gradually transitioning 

to an operational approach designed to maintain ample reserve levels 

without the active use of repo operations to supply reserves.  Under 

this plan, repo operations would be maintained at least through April to 

ensure ample reserve conditions.  However, the Desk would continue the 

gradual reduction and consolidation of its repo offerings ahead of 

April, with the plan of phasing out term repo operations after April.  

As part of this transition, the minimum bid rate on repo operations 

could be gradually lifted, and the Committee could consider whether 

there is a role for repo operations in the implementation framework. 

     In the second quarter, the manager expected reserve conditions to 

support slowing the pace of Treasury bill purchases, with the goal of 

eventually aligning growth of the Federal Reserves Treasury holdings 

with trend growth in its liabilities.  As that time approaches, the 

Committee might wish to consider the appropriate maturity composition of 

reserve management purchases of Treasury securities.  The manager noted 

that, although the pace of Treasury purchases would likely continue into 

the second quarter, the rate of expansion in the Federal Reserve's 

balance sheet would moderate during the first half of 2020 as repo 

outstanding was gradually reduced.   

--MNI Washington Bureau; tel: +1 202-371-2121; email: 

jean.yung@marketnews.com 

[TOPICS: MMUFE$,M$U$$$]