Fed launches Treasury bill buys in bid for 'ample' reserves

Fed to begin Treasury bond purchases of about $60 billion per month

Federal Reserve to buy $60-billion in Treasury bills monthly to ensure 'ample' reserves

Risk trades are at the best levels of the day. The daily operations are meant to ensure there are ample reserves available during spikes in demand.

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.

In addition, the Fed said it will conduct overnight repo operations at least through January.

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.

Earlier this week, Jerome Powell indicated that the Fed would start to expand its balance sheet but insisted the policy should not be considered a new phase of quantitative easing because it was not aimed at generally loosening the stance of monetary policy or boosting economic growth.

Those bond buys, known as quantitative easing, or QE, were created to push down longer-term interest rates to spur borrowing and investment.

The 10-year Treasury falls, pushing yield up nearly 7 basis points to 1.74%; (TLT -1.3%), (TBT +2.6%). The Fed stopped shrinking its balance sheet this summer, earlier than it had intended.

On Thursday, the 10th of October 2019, the US Federal Reserve had unleashed a package of fiscal rules, first introduced during the era of great financial depression of 2007-2009, in a bid to ease capital and liquidity requirements of the local and foreign lenders.

Kaplan blamed the lack of liquidity on the "dramatic increase" in government borrowing as well as regulatory changes since the financial crisis that make banks less willing to lend reserves to each other.

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