Tags: New York | Fed | Asset | Markets

New York Fed: Asset Programs Didn't Disrupt Markets in 2012

Tuesday, 09 Apr 2013 12:28 PM

The Federal Reserve Bank of New York said that the Fed’s asset purchase programs, including the $667 billion Operation Twist and $40 billion in monthly mortgage bond purchases, didn’t disrupt financial markets last year.

The central bank’s open market desk “closely monitored market conditions; its activity did not have significant adverse effects on market functioning,” the New York Fed said in an annual report on the System Open Market Account portfolio released Tuesday.

The New York Fed executes monetary policy by buying and selling bonds. The Fed’s balance sheet has climbed to a record $3.2 trillion, and its programs are so large that officials have been monitoring financial markets to ensure their activity isn’t disrupting other transactions.

The report covers the year 2012, during which the central bank concluded its Operation Twist program in which it swapped about $45 billion a month of short-term Treasury securities for longer-term government debt, in an effort to lower interest rates. In September of 2012, the Fed began purchasing $40 billion a month of mortgage-backed securities, to further support the housing market.

“Common metrics of market functioning suggested that the Desk’s MBS purchase operations did not have any significant adverse effects on the MBS market in 2012,” the Fed said in the annual report. “Trading volumes remained near longer-term averages, while settlement fails in the agency MBS market declined to, and then remained near, multiyear lows.”

Changed Composition

The report primarily summarizes the asset-purchase programs and documents how they’ve changed the composition of the Fed’s portfolio. The report also included an analysis of whether the Fed will continue to earn large profits that it then returns to the Treasury. Previous Fed research has shown that those profits could disappear as interest rates rise.

The report said in some scenarios income could disappear. “A temporary reduction in income, which could prompt a halt to remittances to the Treasury, would not affect the Desk’s capacity to conduct open market operations or the FOMC’s ability to manage short-term interest rates,” the Fed said, referring to the Federal Open Market Committee.

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The Federal Reserve Bank of New York said that the Fed s asset purchase programs, including the $667 billion Operation Twist and $40 billion in monthly mortgage bond purchases, didn t disrupt financial markets last year.The central bank s open market desk closely monitored...
New York,Fed,Asset,Markets
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2013-28-09
Tuesday, 09 Apr 2013 12:28 PM
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