Fed's Kaplan says buying Treasury bills is not QE

Fed's Kaplan says buying Treasury bills is not QE”

"Purchases to continue at least until second quarter of next year".

Kaplan said the liquidity issue the Fed is addressing is not a sign of a bigger problem and the action the Fed is taking to address it is technical and separate from monetary policy.

The central bank is making the moves now to prevent the recurrence of pressures that built up in the short-term lending among banks in mid-September, which pushed the federal funds rate above the Fed's 1.75%-2.00% target range.

Kaplan also responded to questions about the Fed's new program to buy Treasury bills, announced earlier in the day to address strains in overnight funding markets.

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.

Overnight repo operations will occur daily, initially at an offering amount of at least $75B per operation.

Markets for the most part agreed. According to the Bloomberg report, the Fed said the bill purchases would aim to maintain bank reserves in the system at or above the level that prevailed in early September 2019.

The Committee directs the Desk to continue rolling over at auction all principal payments from the Federal Reserve's holdings of Treasury securities and to continue reinvesting all principal payments from the Federal Reserve's holdings of agency debt and agency mortgage-backed securities received during each calendar month. Small deviations from these amounts for operational reasons are acceptable.

More information about these plans may be found on the Federal Reserve Bank of New York's website.

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