In its statement the FOMC justified the ongoing (really now endless) QE by stating that “over coming months the Federal Reserve will increase its holdings of Treasury securities and agency mortgage-backed securities at least at the current pace to sustain smooth market functioning and help foster accommodative financial conditions, thereby supporting the flow of credit to households and businesses.”
In other words, the noble Fed is doing QE for the kids not to keep stocks levitating… which is great, but maybe Powell can explain why as Bloomberg reported yesterday, just 0.2% of the Fed’s Main Street Lending Program has been used?
That said, at the same time as the Fed published its statement, the NY Fed issued its latest QE guidance where there were no surprises: in short, $80BN in monthly Treasury purchases and $40BN in monthly MBS purchases will continue indefinitely. In other news, the Fed’s balance sheet will continue to increase by over $1 trillion each year, and probably more depending on how much additional fiscal stimulus Congress agrees on.
Contrary to some expectations that the Fed could push forward the average maturity of its purchases, the Fed did not do that (this time).
Here is the full statement:
Effective September 16, 2020, the Federal Open Market Committee (FOMC) directed the Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York to continue to increase the System Open Market Account (SOMA) holdings of Treasury securities and agency mortgage-backed securities (MBS) at the current pace. The FOMC also directed the Desk to increase holdings of Treasury securities and agency MBS by additional amounts, and purchase agency commercial mortgage-backed securities (CMBS), as needed to sustain smooth functioning of markets for these securities.
Consistent with this directive, the Desk plans to continue to increase SOMA holdings of Treasury securities by approximately $80 billion per month. Treasury purchases will continue to be conducted across a range of maturities and security types. The Desk will continue to roll over at auction all principal payments from SOMA holdings of maturing Treasury securities. Information on purchase amounts and schedules can be found on the Treasury Securities Operational Details page.
Similarly, the Desk plans to continue to increase SOMA holdings of agency MBS by approximately $40 billion per month. Agency MBS purchases will continue to generally be concentrated in recently produced coupons in 30-year and 15-year fixed rate agency MBS in the To-Be-Announced market. The Desk will continue to reinvest principal payments from agency MBS and agency debt in agency MBS. Total monthly purchase amounts can be found on the Agency MBS Historical Operational Results and Planned Purchase Amounts page and operational schedules can be found on the Agency MBS Operation Schedule page.
In addition, the Desk plans to continue to conduct agency CMBS operations to sustain smooth functioning of the agency CMBS market. Purchases will continue to be secured primarily by multifamily home mortgages that are guaranteed fully as to principal and interest by Fannie Mae, Freddie Mac, and Ginnie Mae and that the Desk has determined are suitable for purchase. The amounts purchased will depend on the reasonableness of the prices offered. Agency CMBS principal payments will no longer be reinvested. Information on purchase amounts and schedules can be found on the Agency CMBS Operation Schedule page.
Additional information on Treasury, agency MBS, and agency CMBS purchases can be found in the following locations:
