Fed to start buying $60b of Treasury bills every month

Bloomberg

The Federal Reserve said it will begin buying $60 billion of Treasury bills per month to improve its control over the benchmark interest rate it uses to guide monetary policy after turmoil rocked money markets in September.
The central bank, in a statement, stressed that “these actions are purely technical measures to support the effective implementation” of interest-rate policy and “do not represent a change” in its monetary stance. “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.”
In foreshadowing the Fed’s decision, Chairman Jerome Powell repeatedly insisted that any planned securities purchases would not be a resumption of quantitative easing — the crisis-era stimulus programs that the central bank used to lower long-term borrowing costs and boost the economy.
The New York Fed’s open markets desk will “purchase Treasury bills at an initial pace of approximately $60 billion per month, starting with the period from mid-October to mid-November,” according to a central bank statement. The Fed said purchases of Treasury bills will extend “at least into the second quarter of next year,” leaving open the possibility of a change in the pace and duration of purchases.
A recent and unexpected scarcity of lenders in overnight funding markets caused yields to spike sharply in mid-September, briefly pushing the Fed’s benchmark rate outside its target range.
Since then, the Fed has been injecting liquidity into overnight markets on an ad hoc basis. The central bank said that these would continue at least through January.
The Fed said the aim of the bill purchases would be to maintain bank reserves in the system “at or above the level that prevailed in early September 2019.”
“I don’t know if this is going to be enough, but this will certainly help,” said Joseph LaVorgna, chief economist for the Americas at Natixis. “It will paper over some of the remaining technical issues that still need to be fixed.”
The central bank said that policy makers held a videoconference to discuss the moves.
The Federal Open Market Committee is next scheduled to meet on October 29-30 to discuss monetary policy amid expectations it could cut interest rates for the third time this year to further protect the economy from global weakness and trade uncertainty.
“From a monetary policy standpoint, I’d say that at the margin it means they can focus on whether to cut or not cut at the next meeting, and not be bothered with the discussion about the plumbing,” said Thomas Costerg, senior economist at Pictet Wealth Management.
By purchasing securities, the Fed will add a cushion to the supply of excess bank reserves, a pool of money that helps provide liquidity to the overnight market.