Federal Reserve to buy $60 billion treasury bills every month

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

"It is meant to ensure in an ample reserves regime that we are able to set the fed funds rate in the target range that we set".

Fed chief Jerome Powell previewed the new steps on Tuesday but stressed that it was not a repeat of the measures used during the financial crisis to push down interest rates, known as "quantitative easing" or QE. "If this proves to be insufficient they'll simply do more". But some strategists say the right level of reserves is between $1.6 trillion and $1.8 trillion.

"Purchases will be in addition to the ongoing purchases related to run off of holdings of mortgage-backed securities". But interest rates increase with demand.

The Federal Reserve will start buying treasury bills from mid-October, and according to the official statement, the purchases will extend at least into the second quarter of next year. The Committee will continue to monitor money market developments as it assesses the level of reserves most consistent with efficient and effective policy implementation.

The 10-year Treasury falls, pushing yield up nearly 7 basis points to 1.74%; (TLT -1.3%), (TBT +2.6%).

A man walks past the Federal Reserve Bank in Washington, December 16, 2015.

"We have to figure out what is the right growth rate of our balance sheet that is not about stimulating the economy, that is just about making sure there is enough liquidity in the system", he said.



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