The New York Fed announced Tuesday the technical details of its soon-to-start effort to keep the central bank’s portfolio fixed around current levels.
The announcement by the New York Fed follows the release of the Federal Open Market Committee policy statement. In that document the Fed lowered its assessment of the economy’s current state. And while it kept interest rates fixed at essentially 0%, its signature move was to say “to help support the economic recovery in a context of price stability, the Committee will keep constant the Federal Reserve’s holdings of securities at their current level by reinvesting principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities.”
There had been widespread anticipation the Fed would on Tuesday take additional steps to support economic growth in the face of a faltering economy. Central bankers, however, face few good options for providing new assistance, and its decision to keep the portfolio’s size stable comes with considerable risk.
There are real questions about the economic impact of the action, given that long-term borrowing rates are already at historic lows, amid continued bank reluctance to lend.
The New York Fed announcement laid out the nuts and bolts of the strategy.
It said it would keep the portfolio steady around $2.054 trillion, and allowed that there would be fluctuations around that mark. Operations will be announced in a mid-month schedule, with the first effort to be announced Wednesday at 3 p.m. The Fed says it expects the purchases to start on or around Aug. 17. The New York Fed said it will concentrate its buying in the two- to 10-year part of the Treasury yield curve, although it would also buy other maturities, as well as inflation index Treasurys, known as TIPS. The Fed said it would try to refrain from buying issuance in which it already has large holdings, and added the operations will be conducted via its primary dealer network.
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