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Fed to buy $60 bln in Treasury bills monthly to ensure ‘ample’ reserves

The Federal Reserve said on Friday that it would begin buying about $60 billion per month in Treasury bills to ensure “ample reserves” in the banking system, a program that will continue at least until the second quarter of 2020.

The program is in response to recent disruptions in short- term money markets that pushed the target federal funds rate to the top of its target range. The Fed deemed the move “technical,” and not a change in the “stance” of monetary policy.

The Fed also said it would continue to inject cash into overnight lending markets until January by offering daily operations in the market for repurchase agreements, or repos.

The U.S. central bank began the interventions in mid-September after the repo rate, which is viewed as a measure of liquidity, spiked to 10% from about 2.25%. The daily operations are meant to ensure there are ample reserves available during spikes in demand.

Some investors said the announcement is a sign that the Fed is willing to act as needed to ensure that short-term interest rates are stable.

“The Fed will do whatever it needs to do to keep funding rates near where they want them,” said Ward McCarthy, chief financial economist for Jefferies in New York. “If this proves to be insufficient they’ll simply do more.”

Source: Economic Times