New York Federal Reserve official: There is no predetermined path for US bond purchases and we will pay close attention to the pressure on the financing market in October

The Zhitong Finance App learned that Roberto Perli (Roberto Perli), head of the New York Federal Reserve's marketing department, said that the Federal Reserve will continue to evaluate the level of reserves in the banking system. There is no pre-set path for purchasing US treasury notes for reserve management, and may be readjusted in the future according to market conditions.

Speaking in advance at an event held in New York on Tuesday, Pelley said that earlier this year, the Federal Open Market Committee (FOMC) of the Federal Reserve gave the New York Federal Reserve Open Market Operations Department a certain degree of autonomy and can adjust the scale of reserve management purchases as needed.

Currently, the scale of such purchases is zero. Pelley pointed out that the previous adjustments were to cope with “changing market conditions,” and that if necessary in the future, the New York Federal Reserve is also preparing to make another adjustment to implement the FOMC policy of maintaining a “sufficient” level of banking system reserves.

Pelley said that the New York Federal Reserve will pay close attention to the views of senior financial executives of large financial institutions on market conditions and whether there are other signs of pressure in the financing market. In particular, he mentioned that the market generally expects another round of large-scale net issuance of US treasury notes in October, so the New York Federal Reserve will observe the market's reaction to this.

Earlier this month, Federal Reserve officials announced that they will not buy US Treasury notes for reserve management purposes until mid-October, which is equivalent to extending the suspension arrangement that began in August. However, the New York Federal Reserve said at the time that it still plans to make reinvestment purchases of about 15.6 billion US dollars. This means that suspending reserve management purchases does not mean that the Federal Reserve will completely stop purchasing operations in the US Treasury bond market. There is a difference in purpose and nature between the two.

Pelley also previously stated that the amount of US treasury notes purchased by the Federal Reserve each month can be adjusted upward or downward according to the market environment, and there is no fixed purchasing trajectory.

The Federal Reserve ended the balance sheet reduction process last year, commonly known as quantitative austerity, and began implementing reserve management purchases to ensure that the banking system has sufficient reserves and maintain the smooth operation of interest rates in the money market. Therefore, such treasury bill purchases are mainly technical operations for the Federal Reserve to manage the liquidity of the banking system, rather than a new round of asset purchase plans with a predetermined scale and period.

An important focus of Pelley's speech was the upcoming supply of US treasury bills. As the market expects the US Treasury to carry out a new round of large-scale net treasury note issuance in October, the liquidity situation in the short-term financing market may be tested. The New York Federal Reserve will focus on observing whether the market can successfully absorb the new supply and whether short-term financing markets such as repurchases are under pressure.

If market conditions change, the Federal Reserve can adjust the reserve management and purchase scale accordingly to ensure that reserves remain within the “sufficient” range required by the FOMC. This also means that although the current reserve management purchase scale has been reduced to zero, whether to resume purchases in the future will depend on reserve levels and the operation of the money market, rather than proceeding according to a fixed schedule.

In addition to reserve management, Pelley also discussed the importance of a central clearing mechanism in the repurchase market. He said that implementing central clearing for repurchase transactions has many benefits. If the Federal Reserve's operating framework relies more on repurchase instruments in the future, these advantages will become even more important, as central clearing can enhance counterparties' ability to mediate liquidity throughout the financial system.

Earlier on the same day, New York Federal Reserve Chairman Williams also said at the same meeting that the transition of US treasury bonds and repurchase transactions using US treasury bonds as collateral to a central clearing mechanism is progressing faster than originally planned.