New York Fed's Remache says elevated Fed bond buying to continue until mid-April

By Michael S. Derby

Feb 12 (Reuters) - The Federal Reserve is on track to continue forward with sizable Treasury bill buying into the spring but it is unclear what happens after the annual tax filing date has passed, an official who helps manage the implementation of monetary policy at the New York Fed said on Thursday.

The official, Julie Remache, who is deputy system open market account manager and head of market and portfolio analysis at the regional Fed bank, was addressing the outlook for so-called reserve management purchases the central bank launched in December.

The Fed is currently buying around $40 billion per month in Treasury bills and other short-term government bonds to rebuild reserves in the financial system and manage liquidity needs as the annual tax filing date approaches in mid-April. It is also buying other government bonds to help manage the size of Fed holdings, with overall SOMA holdings now at $6.2 trillion.

Fed officials say the buying is purely technical and distinct from the kind of purchases the Fed has used to help stabilize markets and provide stimulus during troubled times.

Remache noted that officials responsible for implementing monetary policy expect “purchases to remain around elevated levels until mid-April” and that the buying, in addition to liquidity provided by Fed rate-control facilities, will lead to a “gradual addition” of reserves to the financial system.

“After mid-April, we anticipate the amount of purchases to be reduced substantially,” Remache said. Once the buying slows, “monthly purchase amounts will likely vary based on the outlook for reserves supply and demand, judgment about market conditions, and how these are expected to evolve.”

It is unclear how much the Fed will need to buy once mid-April has passed, Remache said. “There is notable uncertainty about how demand for Fed liabilities will evolve and how that might impact the appropriate supply of reserves.”

The Fed reckons that keeping the right amount of reserves in the financial system ensures firm control over its interest rate target range while allowing for normal money market volatility. The Fed shrank its holdings from 2022 into late last year as it sought to extinguish liquidity added during the COVID-19 pandemic.