The Philippine Star

Fed plans to buy more Trea­sury pa­pers to con­trol lend­ing rates

- Business · Finance · Banking · Washington · Federal Reserve System · New York Federal Reserve Bank · New York City · Jerome Powell

WASH­ING­TON (AP) – The Fed­eral Re­serve said Fri­day that it will buy short-term Trea­sury bills each month un­til the sec­ond quar­ter of 2020 to in­ject cash into the bank­ing sys­tem and make it eas­ier to con­trol its bench­mark lend­ing rate.

The ac­tion marks the Fed’s lat­est re­sponse to a short­age of cash re­serves that de­vel­oped last month and caused short-term in­ter­est rates to spike, briefly send­ing the Fed’s bench­mark rate above its tar­get range. The New York Fed said its first monthly pur­chases, start­ing Tues­day, will to­tal $60 bil­lion. Fu­ture amounts weren’t spec­i­fied.

The Fed also said it will ex­tend a sep­a­rate short-term lend­ing op­er­a­tion through Jan­uary that is also in­tended to boost bank re­serves.

Chair­man Jerome Pow­ell has said these Trea­sury pur­chases aren’t in­tended to stim­u­late the econ­omy. On Fri­day, the Fed said its pur­chases are “tech­ni­cal” and “should not have any mean­ing­ful ef­fects on house­hold and busi­ness spend­ing de­ci­sions and the over­all level of eco­nomic ac­tiv­ity.”

Even so, large Fed bond-buy­ing pro­grams typ­i­cally at­tract at­ten­tion from econ­o­mists and in­vestors be­cause they re­call the ex­tra­or­di­nary pro­grams the cen­tral bank un­der­took to sup­port the econ­omy dur­ing the Great Re­ces­sion and its eco­nom­i­cally slug­gish af­ter­math.

For sev­eral years through 2013, the Fed bought roughly $1.5 tril­lion of Trea­sury’s and mort­gage bonds to try to hold down long-term in­ter­est rates and en­cour­age more bor­row­ing and spend­ing. Lower rates also led in­vestors to in­vest more in stocks.

At the time, many crit­ics feared that the pur­chases, known as “quan­ti­ta­tive eas­ing” or QE, would stoke ram­pant in­fla­tion. That fear proved un­founded.

 ??  ?? Se­cu­rity guards stand out­side of the Fed­eral Re­serve Bank of New York in the Man­hat­tan bor­ough of New York City. REUTERS
Se­cu­rity guards stand out­side of the Fed­eral Re­serve Bank of New York in the Man­hat­tan bor­ough of New York City. REUTERS

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