Fed launches Treasury bill buys in bid for ‘ample’ reserves

FILE PHOTO: The Federal Reserve building is pictured in Washington, DC, U.S., August 22, 2018. REUTERS/Chris Wattie//File Photo

(Reuters) – The Federal Reserve said on Friday that it will start buying about $60 billion (47.4 billion pounds) per month in Treasury bills to ensure “ample reserves” in the banking system, but emphasized the new programme does not mark a change in monetary policy.

The purchases, which will begin Oct. 15, respond to recent disruptions in short-term money markets that pushed the target federal funds rate to the top of its target range, and at least once above it. The “technical” programme, which Fed Chair Jerome Powell had signalled earlier this week was on its way, will continue at least until the second quarter of 2020, the central bank said.

The central bank 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. But it said that the balance sheet expansion is meant to wean money markets off of the daily operations by bringing reserves to a level that accommodates economic growth but is also enough to absorb any spikes in demand.

But the size of the monthly Treasury purchases will be adjusted as the Fed learns more about how much liquidity is needed in the banking system.

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