MNI Policy: Fed To Buy $60B of T-Bills/Month To Lift Reserves

By Evan Ryser

     WASHINGTON (MNI) - The U.S. Federal Reserve said Friday it will buy

Treasury bills at an initial pace of $60 billion per month for at least 6 months

to maintain reserve balances at or above the levels of early September 2019.

     The purchases of Treasury bills from five to 52 weeks, starting from

mid-October to mid-November, are "purely technical measures to support the

effective implementation of the FOMC's monetary policy, and do not represent a

change in the stance of monetary policy," the Fed said. They will continue at

least until the second quarter of next year.

     The Fed will release detailed information on the schedule for Treasury

bills on or around the 9th business day of the month on the New York Fed website

and will consider adjustment based on projections of the balance sheet, reserve

level, and continual assessments.

     The FOMC also directed the Fed's New York Desk to conduct term and

overnight repo operations at least through January to "ensure that the supply of

reserves remains ample even during periods of sharp increases in non-reserve

liabilities, and to mitigate the risk of money market pressures that could

adversely affect policy implementation."

     Term repo operations will generally be conducted twice per week, initially

in an offering amount of at least $35 billion per operation. Overnight repo

operations will be conducted daily, initially in an offering amount of at least

$75 billion per operation.

     The Fed indicated that actions announced today are meant to maintain

reserves at or above the level from early September to ensure operation in a

framework based on an ample supply of reserves, where the Fed Funds rate is

achieved primarily through administered rates, the IOER and the overnight RRP. 

     While seeking to supply ample reserves and accommodate trend growth to be

capable of absorbing shocks in the supply of reserves, there is no observable

number for the appropriate level. 

     The level of reserves in early September was roughly $1.47 trillion.

     The FOMC met by videoconference October 4 to discuss money markets. There

was broad agreement to address the issues and the vote was completed Friday. 

     "Without these purchases, the level of reserves would decline significantly

in coming months because of recent and expected growth in non-reserve

liabilities such as currency in circulation," the Fed said in a press release. 

     "These operations have no material implications for the stance of monetary

policy. In particular, purchases of Treasury bills likely will have little if

any impact on the level of longer-term interest rates and broader financial

conditions," the Fed said. 

     The Fed maintained differences between today's actions and quantitative

easing conducted through the financial crisis.

     QE was "aimed at putting downward pressure on longer-term interest rates,"

while the purchase of Treasury bills "should have little if any effect on

longer-term interest rates and other asset prices and thus should have little

effect on household and business spending decisions and the overall level of

economic activity."

     Fed Chair Jerome Powell revealed plans earlier this week to resume "organic

growth" of the central bank's balance sheet, implying that it would buy Treasury

bills in line with the growth of the central bank's liabilities. 

     The planned purchases are notably above growth in currency in circulation,

which has increased at an average of $5.6 billion per month since April.

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

[TOPICS: M$U$$$,MI$$$$,M$$CR$,M$$FI$,MN$RP$]