Fed Halts Reserve-Management T-Bill Purchases for Second Straight Month, Citing Ample Bank Reserves
Summary
- The Fed said it would halt reserve-management short-term Treasury purchases (RMP) for a second straight month after determining that bank reserves in the banking system are ample.
- The move reflects the view that the short-term funding market is functioning smoothly and that SOFR has remained at or below the interest rate on reserve balances (IORB).
- On Wall Street, forecasts are split over the timing of a restart in purchases and the size of those purchases if short-term Treasury issuance increases.
Forecast Trend Report by Period
The Federal Reserve will halt short-term Treasury purchases for reserve management for a second straight month after determining that reserves in the banking system remain ample.
Bloomberg reported on Sept. 14 that the New York Fed's Open Market Trading Desk does not plan to conduct reserve-management purchases, or RMP, through Oct. 14. It will still buy about $15.6 billion of Treasuries during that period to reinvest proceeds from maturing holdings.
The decision reflects the Fed's view that short-term funding markets are functioning smoothly. The Secured Overnight Financing Rate, or SOFR, a gauge of short-term interbank funding conditions, has remained at or below the interest rate on reserve balances, or IORB, for most of the past month.
Bank reserves have also stayed stable. As of Sept. 9, reserves stood at $3.04 trillion, up from $2.85 trillion at the end of last year and above this year's average of $3.01 trillion.
The Fed has been supplying reserves to the financial system by buying Treasury bills with maturities of less than one year after ending quantitative tightening, or QT, late last year. It bought about $40 billion a month in December to ease pressure in short-term funding markets, then reduced that to $25 billion in April and $10 billion in May before halting the purchases in August.
Still, the move does not signal a change in monetary policy or the Fed's balance-sheet strategy. The central bank has said it can adjust the pace of purchases each month depending on funding-market conditions.
On Wall Street, views differ on when the Fed may resume buying. Wells Fargo and Bank of America expect purchases to restart in mid-October if the U.S. Treasury increases short-term bill issuance next month and funding-market pressures rise. Barclays expects purchases to total $10 billion in October and $20 billion in November.
Citigroup, by contrast, said bank reserves have already recovered to an ample level and that the Fed may keep the pause in place through year-end.
Suehyeon Lee
shlee@bloomingbit.ioI'm reporter Suehyeon Lee, your Web3 Moderator.