- The Federal Reserve will begin purchasing $US60 billion worth of Treasury bills each month starting mid-October to further control its benchmark interest rate.
- The new actions are “purely technical” to support the bank’s current interest rate policy, and “do not represent a change” to its monetary policy strategy, a press release said.
- The new action will add additional capital to bank reserves and likely ease worries of bank liquidity.
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The Federal Reserve will begin buying $US60 billion worth of Treasury bills per month in order to boost control over its most important tool: the benchmark interest rate, according to a Friday press release.
The new actions are “purely technical measures” to support the implementation of its latest interest rate policy and “do not represent a change” to its monetary policy strategy, the release said. The Treasury purchases will begin October 15 and continue “at least into the second quarter of next year.”
Through the New York Fed’s purchasing of Treasury bills, the central bank will add additional capital to bank reserves. Bolstered reserves mitigate worries of bank liquidity, as firms will have increased capital to lend out and borrow.
The decision follows weeks of market repurchase agreement, or repo, operations conducted by the New York Fed to regulate recent irregularities in overnight lending markets. A scarcity of lenders led yields to spike mid-September and push the interest rate outside the Fed’s desired window.
The Fed slashed its key interest rate in September for the second time since the 2008 financial crisis. The action came as central bank officials looked to insulate the US economy from growing risks.
The Federal Open Market Committee next meets October 29 to discuss policy and potentially call for an additional interest rate cut. Further changes to the benchmark rate would likely signal increased risk stemming from trade tensions and global economic slowdown.
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