New York Fed explains why its bill purchases have been at zero since August
Serguey Asael Shinder2 min readThe Federal Reserve's reserve management purchases of Treasury bills have been set to zero since mid-August, and Roberto Perli, who manages the System Open Market Account at the New York Fed, explained why in closing remarks at the US Treasury Market Conference on 22 September. The views, he said, were his own.
The Desk sizes these purchases on three things: its estimate of banks' demand for reserves, its forecast of reserve supply, and money market conditions. Demand, based on outreach and analysis, was little changed. Supply was not: the Desk updated its forecast to reflect the Treasury's guidance for a lower end-of-December balance in its Treasury General Account than previously assumed, which raised expected reserves and reduced the risk of them falling below ample levels. Money markets agreed. The effective federal funds rate and Treasury repo rates traded close to, and on average a little below, the interest rate paid on reserves, which Perli read as reserves sitting in the higher part of the ample range.
The test he highlighted came in July and August, when cumulative net bill issuance of about $400 billion produced only modest upward pressure on repo rates - unlike late last year, when repo rates rose substantially and were quite sensitive to bill supply. He stressed that the purchases are never on a preset course: the Desk will watch how markets absorb another round of heavy bill issuance expected in October, results of its latest Senior Financial Officer Survey on reserve demand, and signs of pressure in repo. He also noted that an operational problem at DTCC at the end of June briefly pulled reserves well below forecast, and that the framework absorbed the surprise.
What it means
The pause is not a change of policy stance; it is the plumbing reacting to a different forecast of how much cash the Treasury will hold. That distinction matters for anyone reading the Fed's balance sheet as a signal. A lower TGA puts more reserves in the banking system, and the Fed has chosen to let that do the work its bill purchases would otherwise have done.
The part worth tracking is October. If heavy bill issuance again passes without pushing repo rates up, the zero setting will look well judged; if repo tightens, the Desk has said plainly that it will resume purchases.