The Federal Reserve has extended the suspension of reserve-management purchases, or RMP, through mid-October, meaning it will not buy U.S. Treasuries for the purpose of managing banking-system reserves during that period. The move suggests the Fed still sees reserve levels in the banking system as relatively ample, based on its latest announcement.
Market views cited in the report say the pause also points to confidence in near-term funding conditions. Secured Overnight Financing Rate, or SOFR, has spent most of the recent period near or below the interest rate paid on reserve balances, while Treasury bill repayments ahead of the quarterly tax deadline have helped ease pressure in funding markets.
Wall Street forecasts are split on what comes next. Strategists at Wells Fargo and Bank of America expect the Fed to keep RMP purchases at zero this month and potentially resume them in mid-October if increased Treasury issuance creates added strain in funding markets. Barclays strategist Samuel Earl expects purchases to return at $10 billion in October and rise to $20 billion in November. Citi strategists, by contrast, think the Fed could keep RMP paused for the rest of the year, arguing reserve balances have fallen back to a “slightly ample” level. The report also notes that the RMP pause does not signal a fundamental shift in the Fed’s monetary-policy stance or balance-sheet strategy.
The Federal Reserve has extended the suspension of reserve-management purchases, or RMP, through mid-October, according to its latest announcement. During that period, the central bank will not buy U.S. Treasuries for the purpose of managing reserve levels in the banking system.
Fed keeps RMP on hold through mid-October
The decision indicates that the Fed still views reserves in the banking system as relatively ample. Market analysis cited in the report says the pause in RMP purchases also reflects confidence in the way short-term funding markets are functioning.
Funding conditions have shown less stress recently
Recent conditions in money markets have helped support that view. The Secured Overnight Financing Rate, or SOFR, has spent most of the time near or below the interest rate on reserve balances. Treasury bill repayments ahead of the quarterly tax deadline have also helped reduce pressure in funding markets.
Banks differ on the timing of a restart
Strategists at Wells Fargo and Bank of America expect the Fed to keep RMP purchases at zero this month. They also see a possible restart in mid-October, as funding markets could face renewed pressure after the Treasury increases debt issuance.
Barclays strategist Samuel Earl expects the Fed to resume purchases at $10 billion in October and then lift that figure to $20 billion in November.
Citi strategists take a different view. They believe the Fed may keep RMP suspended for the rest of the year, adding that reserve balances in the banking system have already fallen back to a “slightly ample” level.
No fundamental shift in broader policy stance
The report says the RMP pause does not amount to a fundamental change in the Federal Reserve’s monetary-policy stance or its balance-sheet strategy.
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