The Federal Reserve has been a reliable buyer of Treasuries for several months. It’s total purchases now stand at around $250 billion, which means that it is nearly done with its program to buy up to $300 billion. Bloomberg reports that the Fed plans to announce a decision this week to halt the program in mid-September.
The FOMC “is unlikely to extend the life of these programs, unless, of course, either the economy or the financial markets take a significant turn for the worse,” Meyer, vice chairman of St. Louis-based Macroeconomic Advisers LLC, wrote in a report released yesterday. “We therefore expect the FOMC to announce at its upcoming meeting that it will allow the Treasury purchase program to expire in mid-September.”
While a few committee members may believe a decision on the bond purchases could be put off a month, “it would be extremely surprising if they left this to be made in September, which is right at the time the program is expected to end,” Meyer said in an interview.
“Given the worries in financial markets that the Fed might be monetizing the debt, the sooner they disabuse the markets of that notion, the better off they’ll be,” Gramley said.
This will be a key test of the Fed’s exit plan. Can it really stop buying Treasuries without devastating the market? Is now the time to buy those triple short Treasury ETFs?
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