FOMC Minutes Excerpt: Repo Operationss Tapering; May Adjust IOER>

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

Market Committee minutes describing committee's policy action, 

published Wednesday for the December meeting: 

     The manager discussed two operational considerations around policy 

implementation.  The first involved the risk that future Treasury bill 

purchases could have a larger effect on liquidity in the Treasury bill 

market in light of expected seasonal declines in bill issuance and the 

Federal Reserve's growing ownership share of outstanding bills.  If this 

risk were to materialize, the Federal Reserve could consider expanding 

the universe of securities purchased for reserve management purposes to 

include coupon-bearing Treasury securities with a short time to 

maturity.  Purchases of these short-dated securities would not affect 

broader financial conditions or the stance of monetary policy.  The 

manager also discussed expectations to gradually transition away from 

active repo operations next year as Treasury bill purchases supply a 

larger base of reserves.  The calendar of repo operations starting in 

mid-January could reflect a gradual reduction in active repo operations.  

The manager indicated that some repos might be needed at least through 

April, when tax payments will sharply reduce reserve levels.  

     As reserves remain ample, the manager noted that it may become 

appropriate at some point to implement a technical adjustment to the 

IOER rate and the offered rate on overnight reverse repurchase (ON RRP) 

agreements.  Should conditions warrant this adjustment, the IOER rate 

could move closer to the middle of the target range for the federal 

funds rate, and the ON RRP rate could be realigned with the bottom of 

the target range.   

     The manager also noted that the Federal Reserve Bank of New York 

communicated to its customers that the remuneration rate on the foreign 

repo pool will be revised to be generally equivalent to the overnight 

reverse repo rate. This action may reduce activity in the pool to some 

extent and increase the level of reserves. 

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

jean.yung@marketnews.com 

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