What are open market operations? The Fed purchases T-bills, right? Maybe that was true at one point, but the Fed's security portfolio has changed.
The Fed currently holds $1.8 trillion in securities, approximately 82% of total assets. Security holdings again dominate the Fed's asset portfolio, but T-bills make up less than 1%. The chart below shows different types of securities as a percent of total securities.
What about the Treasury notes and bonds? While some of them have relatively short terms to maturity, about half are maturing after 2014. The chart below shows T-notes and bonds by their term to maturity as a percent of total T-notes and bonds.
Bill:
ReplyDeleteFor many years, T-Bills have been about half or less of the Fed portfolio in the past ten years. In the 1980s the average maturity was four years. After a liquidity crisis in '84, the Fed undertook to expand its portfolio of bills and the average maturity was allowed to drift down to 3 years by 1991.
The day-to-day management of the FF rate is via repos and reverse repos.
T-bills are not involved in executing monetary policy. The Fed held them so to readily sterilize unexpected activity at the discount window. The interest-on-reserves policy has now subsummed that sterilization role.
Consequently, t-bills are basically gone from the Fed's portfolio.
So in short. Tbills have not been used to manage the FF rate in over 30 years.
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