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The Federal Reserve’s Market Functioning Purchases

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Abstract

In March 2020, massive customer selling of U.S. Treasury securities and agency mortgage-backed securities (MBS) triggered by the COVID-19 pandemic overwhelmed dealers’ capacity to intermediate trades, contributing to a marked deterioration of market functioning. The Federal Reserve promptly took numerous steps to address the market disruptions, including the initiation of market functioning purchases of Treasury securities and agency MBS. Purchases quickly expanded to over $100 billion per day as the Fed announced plans to buy securities “in the amounts needed” to support market functioning and the effective transmission of monetary policy. Market liquidity improved steadily after mid-March, suggesting that the Fed’s efforts were effective, and the security purchases were scaled back accordingly.

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  • Michael J. Fleming & Haoyang Liu & Rich Podjasek & Jake Schurmeier, 2021. "The Federal Reserve’s Market Functioning Purchases," Staff Reports 998, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednsr:93540
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    Cited by:

    1. Thomas M. Eisenbach & Gregory Phelan, 2022. "Fragility of Safe Asset Markets," Staff Reports 1026, Federal Reserve Bank of New York.

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    More about this item

    Keywords

    Federal Reserve; asset purchases; Treasury securities; agency mortgage-backed securities; COVID-19;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G01 - Financial Economics - - General - - - Financial Crises
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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