Fed Halts Reserve-Management T-Bill Purchases for Second Straight Month, Citing Ample Bank Reserves
Summary
- The Fed said it will halt short-term Treasury purchases (RMP) for reserve management for a second straight month after determining that reserve balances in the banking system are sufficient.
- The move comes as the short-term funding market and SOFR remain stable, and does not represent a change in monetary policy or the Fed's balance-sheet operating strategy.
- On Wall Street, views are split over a possible October restart versus a pause through year-end, depending on increased U.S. Treasury bill issuance, the timing of a future resumption of purchases, and the size of those purchases.
Forecast Trend Report by Period
The Federal Reserve will halt short-term Treasury purchases for reserve management for a second straight month, concluding that reserves in the banking system remain ample.
Bloomberg reported on September 14 that the New York Fed's Open Market Trading Desk does not plan to conduct reserve management purchases, or RMP, through October 14. It will still buy about $15.6 billion of Treasuries during that period to reinvest proceeds from maturing securities.
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 funding conditions between banks, has stayed at or below the interest rate on reserve balances, or IORB, for most of the past month.
Bank reserves have also remained steady. Reserve balances stood at $3.04 trillion as of September 9, up from $2.85 trillion at the end of last year and above this year's average of $3.01 trillion.
After ending quantitative tightening, or QT, late last year, the Fed had been supplying reserves to the financial system by buying Treasury bills with less than one year to maturity. It purchased 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 purchases in August.
The move does not signal a change in monetary policy or in the Fed's balance-sheet operating strategy. Officials have said the central bank can adjust the size of monthly purchases flexibly depending on funding-market conditions.
On Wall Street, views differ on when purchases may resume. Wells Fargo and Bank of America expect buying to restart in mid-October if the U.S. Treasury increases short-term bill issuance next month and funding-market pressure rises. Barclays expects purchases to total $10 billion in October and $20 billion in November.
Citigroup, by contrast, said bank reserves have already recovered to a sufficient level and expects the Fed to maintain the pause through year-end.
