The US Federal Reserve committed today to holding its federal funds rate to a zero-0.25% range “until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment & price stability goals”.
After the usual post-meeting posturing, the US central bank’s open market committee said: “To support the flow of credit to households & businesses, the Federal Reserve will continue to purchase Treasury securities & agency residential & commercial mortgage-backed securities in the amounts needed to support smooth market functioning, thereby fostering effective transmission of monetary policy to broader financial conditions.
“In addition, the open market desk will continue to offer largescale overnight & term repurchase agreement operations. The committee will closely monitor market conditions and is prepared to adjust its plans as appropriate.”
It’s effectively a resumption of the quantitative easing policy after a brief period of reducing the central bank’s debt.
The Fed set out 6 points for the open market desk to follow, effective from today:
- Undertake open market operations as necessary to maintain the federal funds rate in a target range of 0-¼%
- Increase the system open market account holdings of Treasury securities, agency mortgage-backed securities (MBS) & agency commercial mortgage-backed securities (CMBS) in the amounts needed to support the smooth functioning of markets for these securities
- Conduct term & overnight repurchase agreement operations to support effective policy implementation & the smooth functioning of short-term $US funding markets
- Conduct overnight reverse repurchase agreement operations at an offering rate of 0.00% and with a per-counterparty limit of $US30 billion/day; the per-counterparty limit can be temporarily increased at the discretion of the chair
- Roll over at auction all principal payments from the Federal Reserve’s holdings of Treasury securities and reinvest all principal payments from the Federal Reserve’s holdings of agency debt & agency MBS in agency MBS, and all principal payments from holdings of agency CMBS in agency CMBS
- Engage in dollar roll & coupon swap transactions as necessary to facilitate settlement of the Federal Reserve’s agency MBS transactions.
In a related action, the Fed’s board of governors voted unanimously to approve the establishment of the primary credit rate at the existing level of 0.25%.
Attribution: Federal Reserve.