16 June 2019

Fed Looks To End Bond Purchases In October

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The Federal Reserve has started to provide details on ending the massive bond-buying program designed to stimulate the economy. Indications from the latest policy meeting point to an end of these purchases in October.

The minutes from the meeting showed the Fed officials "generally agreed" that monthly bond purchases would end in October, with a final reduction of $15 billion in monthly purchases of U.S. Treasuries and mortgage-backed securities.

Fed officials expressed overall confidence that moderate economic growth will continue and unemployment and inflation will gradually move towards the central bank's targets. There was little in the minutes to suggest the Fed will change its target timeframe for the first interest rate increase, currently expected in the middle of next year.

The Fed’s bond-buying exit strategy is complicated because its stimulus programs flooded the financial system with $2.6 trillion that has ended up back at the Fed as excess bank reserves. With that much money on hand, banks have little need to borrow from each other in the federal funds market - stifling an important interest rate tool.

The New York branch of the U.S. central bank has been testing the reverse repo facility since September as a way to help control short-term interest rates, and has seen strong demand from money market funds and other bidders. In reverse repos, the Fed borrows funds overnight from banks, large money market mutual funds and others. The tool is designed to mop up excess cash in the financial system which could keep market rates too low if left in circulation.

Click here for the original article from Reuters.  
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