MNI: Fed Likely To Reduce Purchases After Mid-April - Remache

The Federal Reserve will continue its balance-sheet expansion with USD40 billion of securities purchases per month until mid-April, when it will likely be reduced substantially, the central bank's deputy SOMA manager, Julie Remache, said Thursday. 

After its December meeting, the FOMC said it would start its balance-sheet expansion with USD40 billion of securities purchases per month, with plans to taper the pace of the new buying sometime this year. After more than three years of balance sheet reduction, the FOMC ended runoff last fall, when it determined that reserves had reached ample levels. 

Earlier today the New York Fed announced that it would purchase an additional USD40 billion in Treasury bills through mid March.

The U.S. Treasury recently estimated that its cash balance could peak around USD1.025 trillion by late April, amid tax season inflows, which Remache said will likely result in a notable drawdown in reserves. "Together with standing open market operations, a gradual addition of reserves through [Reserve Management Purchases] RMPs between now and then seeks to ensure that reserve balances remain ample enough to cover any increases across non-reserve liabilities with minimal market disruption," she said. 

"After mid-April, we anticipate the amount of purchases to be reduced substantially," she said in prepared remarks for a speech to a Women in Fixed Income Conference. 

"Looking ahead, monthly purchase amounts will likely vary based on the outlook for reserves supply and demand, judgment about market conditions, and how these are expected to evolve," Remache said. "Our forecasts for reserves supply will reflect trend growth and expected seasonal shifts in the Fed’s non-reserve liabilities, including currency and the TGA."