THE FEDERAL RESERVE'S MARKET FUNCTIONING PURCHASES

This article assesses the rationale, operations, and implications of the Federal Reserve's market functioning purchases. The security purchases were introduced in March 2020, when massive customer selling of U.S. Treasury securities and agency mortgage-backed securities triggered by the COVID-1...

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Bibliographic Details
Published in:Economic Policy Review - Federal Reserve Bank of New York 2022-06, Vol.28 (1), p.210-V
Main Authors: Fleming, Michael, Liu, Haoyang, Podjasek, Rich, Schurmeier, Jake
Format: Article
Language:English
Subjects:
Banking
Central banks
Coronaviruses
COVID-19
Deterioration
Disease transmission
Economic crisis
Financial markets
Fixed incomes
International finance
Markets
Monetary policy
Mortgage backed securities
Pandemics
Prices
Purchasing
Securities
Treasuries
Treasury securities
Volatility
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Summary:This article assesses the rationale, operations, and implications of the Federal Reserve's market functioning purchases. The security purchases were introduced in March 2020, when massive customer selling of U.S. Treasury securities and agency mortgage-backed securities triggered by the COVID-19 pandemic overwhelmed dealers' capacity to intermediate trades, contributing to a marked deterioration of market functioning. Purchases quickly expanded to over $100 billion per day as the Fed announced plans to buy securities "in the amounts needed" to support market functioning and the effective transmission of monetary policy. Aside from their speed and scale, the purchases were novel in that their pace and distribution depended on observable measures of market functioning. At the same time, the purchases relied on common tools, specific precedent, and general principles of a central bank's role. After the purchases were launched, market functioning improved steadily, and the purchases were scaled back accordingly.
ISSN:1932-0426
1932-0604