The Federal Reserve's operations team at the New York Fed plans to maintain elevated purchases of Treasury bills and other short-term government securities into the spring, with a pause for reassessment after the annual tax filing date in mid-April, a senior implementation official said on Thursday.
Julie Remache, who serves as deputy system open market account manager and head of market and portfolio analysis at the New York Fed and helps oversee the execution of monetary policy, outlined the reasoning behind the purchases and the likely path forward for what the central bank terms reserve management operations. Those operations, launched in December, are intended to rebuild reserves in the financial system and to manage liquidity fluctuations tied to seasonal factors.
At present, the Fed is buying roughly $40 billion per month in Treasury bills and other short-term government debt. In addition to those short-term purchases, the central bank is acquiring other government bonds to manage the overall size of its System Open Market Account holdings, which now stand at $6.2 trillion.
Remache emphasized the technical nature of the program, distinguishing it from the asset purchases the Fed has used in the past to stabilize markets or provide stimulus in periods of market stress. She said officials responsible for executing policy expect "purchases to remain around elevated levels until mid-April." She added that the combination of these purchases and liquidity provided by Fed rate-control facilities will result in a "gradual addition" of reserves to the financial system.
Looking past mid-April, Remache said officials "anticipate the amount of purchases to be reduced substantially." She explained that once the program winds down from its current intensity, "monthly purchase amounts will likely vary based on the outlook for reserves supply and demand, judgment about market conditions, and how these are expected to evolve."
Remache also acknowledged that there is considerable uncertainty about the scale of future operations. "There is notable uncertainty about how demand for Fed liabilities will evolve and how that might impact the appropriate supply of reserves," she said. That uncertainty leaves open the amount of additional buying the Fed may need once the annual tax season passes.
Keeping an appropriate level of reserves, officials say, helps the Fed maintain firm control over its target interest rate range while allowing for normal money market volatility. The statement noted that the Fed reduced its holdings from 2022 into late last year as part of efforts to reverse liquidity added during the COVID-19 period.
Context for markets
- Primary purpose of current purchases is technical reserve management, not market stimulus.
- Operations are timed to address liquidity needs related to the annual tax filing date in mid-April.
- Overall SOMA holdings are reported at $6.2 trillion.