MNI POLICY: Fed Prepared to Adjust T-Bill Purchase Pace

Fed's Logan Says Will Adjust Repos As Needed For Year-End

By Evan Ryser

     NEW YORK (MNI) - The Federal Reserve will adjust its Treasury bill

purchases and repos as needed to ensure the fed funds rate stays within the

target range, said Lorie Logan, acting leader of the New York markets desk. 

     The repo operations have "successfully offset supply changes and money

market pressures," Logan said Monday at the Annual Primary Dealer Meeting in New

York. "The Desk will continue to make adjustments as needed to mitigate the risk

of money market pressures that could adversely affect policy implementation." 

     The Fed has intervened in money markets since mid-September when repo rates

spiked, causing the federal funds rate to momentarily print outside the band.

Although conditions have calmed, Logan said, the Fed is monitoring conditions

and will "continue to use its tools and adjust operational plans as needed."

     The Fed announced on Oct. 11 the purchase of Treasury bills "at an initial

pace of approximately $60 billion per month" into the second quarter of next

year to maintain its ample reserve balances at or above the level that prevailed

in early September 2019, roughly $1.45 trillion. It also pledged the

continuation of term and overnight repurchase agreements at least through

January. 

     Logan said the desk "is prepared to adjust the pace and other parameters of

the reserve management purchases as necessary to maintain an ample supply of

reserves and based on money market conditions." 

     "Since it will take some time to accumulate securities holdings, we also

continue to conduct temporary repurchase agreement (repo) operations in order to

ensure that the supply of reserves remains ample and to mitigate the risk of

money market pressures that could adversely affect policy implementation," Logan

said. 

     Speaking about the Fed's Oct. 23 decision to increase the amount offered in

overnight repo and term repo operations, Logan said the increase "was supportive

to money markets, and the federal funds rate was stable over October's

month-end." 

     The "level of reserves needed to maintain an ample reserves regime is more

than the sum of individual banks' reserves demand, particularly when there are

frictions that result in inefficient redistribution of reserves," Logan said. 

--MNI Washington Bureau; +1 202 371 2121; email: evan.ryser@marketnews.com

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