[11th Reuters]-The US Federal Reserve (FRB) announced on the 11th that it will begin to purchase about 60 billion dollars of Treasury securities per month in order to secure a “rich reserve” within the banking system. Purchases will continue until the second quarter of 2020.
The FRB says these measures are “technical” in response to the recent short-term financial market tightness and not a change in monetary policy stance.
In the short-term financial market, interest rates surged from about 2.25% to 10% in the repo transaction market backed by government bonds in mid-September against the backdrop of higher corporate tax payments than expected and government bond auctions. The New York Fed, which is in charge of financial regulation, supplied next-day funds through the repo market to stabilize interest rates. [nL3N26U0P7]
The FRB has announced that it will continue to strengthen liquidity through such repo transactions until next January.
There is a view in the market that the FRB is taking an action to stabilize short-term interest rates as needed. “The FRB will do all it can to keep the federal funds (FF) interest rate close to the inducement target,” said Ward McCarthy, chief financial economist at Jeffreys (New York). “If these measures are not effective enough, the FRB will introduce more steps,” he said.
