Fed to purchase short-term Treasury bills to inject cash

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 overnight lending rates.

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, 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 … the overall level of economic activity.”

During the Great Recession and its economically sluggish aftermath, the Fed bought roughly $1.5 trillion of Treasurys and mortgage bonds to try to hold down long-term rates and encourage more borrowing and spending. Lower rates also led investors to invest more in stocks.

This time, the Fed has stressed that its new bond-buying isn’t intended to affect most interest rates. Instead, they are intended to help the Fed’s tools for setting interest rates work better.

The Fed’s benchmark interest rate is now a range of 1.75 percent to 2 percent.