Fed Set to Dial Back Pace of QE Treasury Buying Next Thursday
The Marriner S. Eccles Federal Reserve building stands in Washington, D.C., U.S.. Photographer: Andrew Harrer/Bloomberg

Fed Set to Dial Back Pace of QE Treasury Buying Next Thursday

(Bloomberg) -- The Federal Reserve will slow the pace at which it buys Treasuries under its unlimited quantitative easing program.

The U.S. central bank, which has been aggressively purchasing Treasuries for the past two weeks in a bid to offset the economic and market fallout from the coronavirus pandemic, on Friday said that it would dial back the daily pace of buying to $60 billion next Thursday and Friday. It will continue purchasing at the existing pace of $75 billion a day for the first three days of next week.

“This is a more nimble Fed, at least opposed to the earlier QE Fed, because they’re not operating off a rule book -- they’re trying to calibrate the amount needed and retaining flexibility,” said Priya Misra, global head of rates strategy at TD Securities. “The fact that they’re easing into it is a good sign, they’re trying to get more data, the fact they’re giving us a week notice, that’s good.” If $60 billion a day proves too little, Misra said she wouldn’t be surprised to see them increase the amount again.

The central bank announced its return to quantitative easing earlier this month as virus concerns ripped through global markets and the prospects for the global economy cratered. And this past Monday it declared that it would purchase assets “in the amounts needed to support the smooth functioning of markets.” It has bought Treasuries at a steady clip of $75 billion a day since then, although there was some talk in the market that the monetary authority might look to ease back.

They couldn’t buy $75 billion a day forever, so “stepping it back slowly” to $60 billion “makes sense,” said Thomas Simons, a money market economist at Jefferies LLC. “They’ve been having a few of the purchases under-subscribed so that’s a sign they don’t have to go full bore.”

At this pace the Fed will have bought almost $1 trillion dollars of Treasuries by end of next week.

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