FED: SOMA's Perli: Reserve Management Purchases Not On Preset Course

NY Fed SOMA manager Perli cleared up a matter from the June FOMC that wasn't addressed in the minutes to the meeting in a speech  Thursday on "Repo Market Structure and Monetary Policy Implementation" : "Many of you will have noticed that the FOMC implementation note was changed at the June meeting to make explicit that temporary pauses in RMPs could occur if money market conditions warrant. That represents flexibility that the Desk could use in the future, for example if money market conditions eased again substantially. The Desk’s strategy to determine the monthly amounts of RMPs, however, has not changed—we will continue to set those amounts with the aim of keeping reserves within the ample range."

• RMPs dropped sharply from the $40B/month that prevailed between Dec and Apr, to $10B/month since mid-June. Perli said "RMPs are not on a preset course, and the Desk can adjust amounts up or down for any given month, depending on money market conditions" and pointed out "Looking ahead, it’s almost guaranteed that money market conditions will continue to change. One such change will happen very soon—this month and next, money markets will have to absorb a large amount of net bill issuance; as such, money market conditions may tighten, and the reserves demand curve could shift back up."
• He looks at factors that pushed down repo rates in May, repeating some of the findings he presented to the FOMC as per the June meeting minutes including factors like: the increase in reserves after April's tax data; RMPs; low bill supply; as well as various technical factors on both supply/demand: "U.S. GSIBs have more repo intermediation capacity as a result of regulatory changes; Reduced hedge fund demand for repo financing amid a less profitable basis trade; temporary increase in GSE repo investment activity associated with their monthly float period".
• No word on the new Fed balance sheet "task force" though, other than that Chair Warsh will be appointing one. Perli does summarize recent changes in repo market structure without making conclusions, including the shift toward central clearing, and the nascent area of tokenized repo. "The structure of the repo market is constantly evolving, and we closely monitor these changes to understand the implications for monetary policy implementation. In the past, the Desk has adapted its operations to align with changes in market structure and the Fed’s monetary policy implementation framework. I am confident that we can further adapt operations in the future, as needed, to maintain strong interest rate control and to implement monetary policy effectively and efficiently."