Following the latest Federal Open Market Committee meeting, the Federal Reserve said it plans to slow its purchases of U.S. Treasuries and end the buying program in October, one month later than originally planned.
The Federal Reserve’s Treasury buying program has a target purchase amount of $300 billion. The program was designed to provide demand for government debt, thus helping to support the price of Treasury bonds and notes, which helps to keep the rates on those securities low.
“To promote a smooth transition in markets as these purchases of Treasury securities are completed, the Committee has decided to gradually slow the pace of these transactions and anticipates that the full amount will be purchased by the end of October,” the Federal Reserve said in a statement posted on its website.
Between the Treasury buying program and its pledge to purchase $1.25 trillion in agency mortgage backed securities, the Federal Reserve has already expanded its balance sheet by $1 trillion. The mortgage backed security buying is set to finish near the end of the year, which is a sign that the Fed believes credit markets will be able to function smoothly again without liquidity being pumped in by the government.
Credit markets have also received a boost from a decline in the overnight lending rate between banks, which has fallen about 0.2 percent or 20 basis points since May 1 after floating around 0.75 percent.
The statement on asset buying plans was released with the Fed’s latest decision on interest rates. The agency decided to keep its federal funds rate at a target of 0-0.25 percent, on what was a unanimous vote. The rate will remain “exceptionally low” for an “extended period” of time, according to Fed comments.
