Fed plans open market operations to keep reserves ample and support monetary policy

The monetary policy setting arm of the Federal Reserve Board on Friday announced the central bank’s plans for open market operations – purchases of Treasury bills and the conduct of term and overnight repurchase agreement operations – to ensure ample reserves to support the effective implementation of monetary policy.

“Consistent with its January 2019 Statement Regarding Monetary Policy Implementation and Balance Sheet Normalization, the Committee [Federal Open Market Committee, or FOMC] reaffirms its intention to implement monetary policy in a regime in which an ample supply of reserves ensures that control over the level of the federal funds rate and other short-term interest rates is exercised primarily through the setting of the Federal Reserve’s administered rates, and in which active management of the supply of reserves is not required,” the committee said in Friday’s announcement.

The FOMC began meeting Oct. 4 and approved, by notation vote completed Oct. 11, the following steps:

  • In light of recent and expected increases in the Federal Reserve’s non-reserve liabilities, the Federal Reserve will purchase Treasury bills at least into the second quarter of next year in order to maintain over time ample reserve balances at or above the level that prevailed in early September 2019.
  • In addition, the Federal Reserve will conduct term and overnight repurchase agreement operations at least through January of next year to ensure that the supply of reserves remains ample even during periods of sharp increases in non-reserve liabilities, and to mitigate the risk of money market pressures that could adversely affect policy implementation.

“These actions are purely technical measures to support the effective implementation of the FOMC’s monetary policy, and do not represent a change in the stance of monetary policy,” the committee said. “The Committee will continue to monitor money market developments as it assesses the level of reserves most consistent with efficient and effective policy implementation. The Committee stands ready to adjust the details of these plans as necessary to foster efficient and effective implementation of monetary policy.”

The FOMC said it voted unanimously to authorize and direct the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the System Open Market Account in accordance with its domestic policy directive, effective Oct. 15. The New York Fed’s statement on planned activities is linked below.

Statement Regarding Monetary Policy Implementation

Statement by New York Fed regarding Treasury Bill Purchase and Repurchase Transactions

FAQs: Repurchase Agreement Operations