Fed's Kaplan says buying Treasury bills is not QE

Dallas Federal Reserve Bank President Robert Kaplan speaks at the Commonwealth Club in San Francisco U.S

In the new programme, the New York Fed will buy about US$60 billion (RM251 billion) a month in short term US Treasury debt through the second quarter of next year to ensure "the supply of reserves remains ample", according to a statement.

"The Fed will do whatever it needs to do to keep funding rates near where they want them", said Ward McCarthy, chief financial economist for Jefferies in NY.

The central bank is making the moves now to prevent the recurrence of pressures that built up in the short-term lending among banks in mid-September, which pushed the federal funds rate above the Fed's 1.75%-2.00% target range.

Overnight repo operations will occur daily, initially at an offering amount of at least $75B per operation. "If this proves to be insufficient they'll simply do more".

More news: Prime Minister wants to talk to European leaders about Brexit deal

U.S. President Donald Trump has been railing against Powell and his colleagues for months, demanding first that the Fed stop shrinking the balance sheet and more recently to ease monetary policy outright. Now he tells us which irrational market behaviors have him most anxious.

The outlines of the trade deal were announced while Kaplan was giving his talk. It is hoped that the purchases, which swap reserves for Treasury bills, will relieve stress in the bank funding market.

"The dramatic increase in Treasury issuance takes liquidity out of the system", Kaplan said at the Commonwealth Club.

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