NEW YORK (MaceNews) – The Federal Reserve’s renewed program of open market operations has stabilized money markets and is keeping the federal funds rate at its target level, and the Fed may adjust its program as needed over time, New York Fed President John Williams said Thursday.
Williams, in remarks prepared for delivery to a Managed Funds Association here, said the Fed’s repo operations, which resumed on Sept. 17 after short-term rates spiked, “had the desired effect of reducing strains in markets, narrowing the dispersion of rates, and fostering conditions in money markets to keep the federal funds rate within the target range.”
The Fed’s announcement last week that it would begin regular outright purchases of US Treasury bills, in addition to the temporary repo operations, is aimed at keeping reserves ample, Williams said. “Although temporary open market operations are doing the trick for the time being, anticipated increases in non-reserve liabilities would cause reserves to decline in coming months without further actions. Based on these considerations, last Friday the FOMC announced that the Fed will be purchasing U.S. Treasury bills at least into the second quarter of next year.”
Williams noted the Fed announced an initial monthly pace of purchases of $60 billion, in addition to its repo operations. “These permanent purchases will, over time, bring the underlying level of reserves—by which I mean absent temporary open market operations—to a level consistent with the ample reserves framework on a sustained basis.”
“This combination of permanent Treasury bill purchases and ongoing temporary open market operations is designed to provide effective control of the federal funds rate over the next several months. I should emphasize that all of these actions are aimed at the implementation of monetary policy and do not in any way represent a change in the stance of monetary policy. The goal is to make sure that the federal funds rate stays within the target range set by the FOMC. As we move forward, we will continue to learn about demand for reserves and other Federal Reserve liabilities and market functioning, and may adjust the specifics of the plan as appropriate.”