Fed's Perli says Treasury bill purchases can be adjusted as needed

Investing.com -- The Federal Reserve maintains flexibility to adjust its Treasury bill purchases based on market conditions, according to Roberto Perli, the official responsible for implementing monetary policy at the New York Federal Reserve.

Speaking Thursday at a conference hosted by his regional Fed bank, Perli said reserve management purchases are "not on a preset course, and the Desk can adjust amounts up or down for any given month, depending on money market conditions."

The Fed began its reserve management purchases in December to help build short-term market liquidity ahead of the mid-April tax deadline, which can cause volatility in banking sector reserves. The purchases started at $40 billion per month and have since decreased to $10 billion per month.

Perli noted that the Federal Open Market Committee at its mid-June meeting made "explicit that temporary pauses in RMPs could occur if money market conditions warrant." He added "that represents flexibility that the Desk could use in the future, for example if money market conditions eased again substantially."

The Treasury bill-buying helped the Fed navigate tax season and maintain control of interest rates. Despite recent softness in money markets partly due to Treasury cash management, Perli said there was "no evidence of a material change in banks' demand for reserves."

Perli said money market conditions may change in coming months. "This month and next, money markets will have to absorb a large amount of net bill issuance; as such, money market conditions may tighten, and the reserves demand curve could shift back up."

The Fed is prepared to implement any changes to the balance sheet under new Fed Chairman Kevin Warsh, Perli said. "The Desk is well positioned to implement any changes to the balance sheet and rate control framework that the Committee might decide to pursue."

Perli also noted "encouraging signs" that market participants are more willing to use standing repo operations when needed.

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