NEW YORK Jan 16 The U.S. Federal Reserve's
trading desk is set to execute a series of small-value
repurchase agreements as a test to ensure the little-used
process will work when the central bank finally decides to
reverse its easy monetary policies.
The Federal Reserve Bank of New York, which handles the U.S.
central bank's open market operations, including the purchases
of some $2.5 trillion in bonds over the last few years, said on
Wednesday the test is "a matter of prudent advance planning" and
does "not represent a change in the stance of monetary policy."
In a repurchase agreement, or repo, the New York Fed buys a
U.S. Treasury bond or mortgage-backed security (MBS) under an
agreement to resell it in the future. Repos would help the Fed
lower its balance sheet, which is now worth about $3 trillion
The Fed Bank did such a test in August, 2012, and said on
Wednesday it intends to do another "in the near future." The
trades would be done at current market prices and would be
designed to have no effect on rates or reserves, it added.
The central bank has taken aggressive steps to boost the
battered U.S. economy during and after the 2007-2009 recession,
including three rounds of quantitative easing, or QE, in which
it bought Treasuries and MBS to lower longer-term yields and
spur hiring and investment more generally.
The Fed currently buys $85 billion in these bonds per month.
Minutes from the last Fed policy meeting, however, revealed that
several top officials expected to slow or stop the program this
year, setting off recent debate over how long QE3 it will last.