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Comment: Fed purchases of Treasury bills past their peak

Beginning in mid-October 2019 the Fed started to purchase US Treasury bills to make a technical adjustment to the size of its balance sheet to ensure that reserves were “durably” ample at levels similar to those before the liquidity problems that emerged in mid-September. Chair Jerome Powell has said that the the decision to purchase Treasury bills was not a monetary policy action and that it is expected to wind up in the second quarter as previously announced. However, that is more likely to be April at the start of the second quarter rather than in May or June.

So far purchases of bills have raised the level of the Fed’s holdings by about $235.5 billion. If they keep to the planned about $60 billion a month, the end total should be somewhere a little north of that. In any case, it is not a major expansion of the balance sheet and it seems to have served its purpose while the FOMC take time to consider how best to avoid another situation as that which occurred in September.

In combination with the ongoing reductions in holdings of Agency MBS of about $20 billion a month, the purchases of Treasury bills have lifted the share of Treasurys to about 64% of all securities held, a visible increase from the 60% around the end of October.

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