Roberto Perli, manager of the System Open Market Account at the Federal Reserve Bank of New York, said on Thursday that the Fed's current program of Treasury bill purchases is expected to slow down in the near term. "An adjustment to our monthly purchase pace is likely to happen soon," Perli said, describing the timeline for a drawdown of the central bank's short-term purchases.
Perli noted that the Fed has been purchasing about $40 billion per month in Treasury bills. He said that, while the precise liquidity needs of the financial system are difficult to predict as market participants move through the upcoming tax-payment date, the current pace "can likely be significantly reduced after April 15." To manage the uncertainty, he added that "To account for uncertainty and other factors, that reduction may be somewhat gradual."
The bill buying program began late last year when the Fed announced it would resume sizable purchases of short-term government securities. The aim, Perli said, was to restore liquidity after the central bank had paused what had been a long-running drawdown of its balance sheet. That earlier program of quantitative tightening had been in place since 2022 and was intended to remove what the Fed viewed as excess liquidity from financial markets. Over that period the Fed's overall holdings declined from around $9 trillion to under $7 trillion.
Perli explained that quantitative tightening ended when market liquidity tightened to the point that it threatened the Fed's ability to control its benchmark interest rate. The subsequent decision to buy Treasury bills was designed both to ensure orderly market conditions and to shorten the overall maturity profile of the Fed's holdings, better aligning them with the Treasury market.
On the operational reasoning behind the initial size of purchases, Perli said officials sought to get ahead of the tax-date driven strains. He said the Federal Open Market Committee "could have waited until the expected flows materialized in April to fill the reserves gap, but this would have implied the need to purchase very large amounts of Treasuries in short order." He added, "That would have been impractical from an operational standpoint."
Perli also cautioned that the Fed may at times err on the side of adding more liquidity than strictly required. That excess could temporarily depress money-market rates and channel some cash into the Fed's reverse-repo facility, where eligible counterparties park overnight funds. He reiterated that eligible financial firms "should use the Fed's standing repo operations to borrow cash when it makes sense for them."
The comments underline the Fed's current focus on calibrating liquidity provision amid predictable seasonal flows and ongoing concerns about money-market functioning, while signaling a likely moderation in the central bank's monthly Treasury bill purchases following the mid-April tax date.