The central bank will reduce its purchases of US Treasury bills, which currently reach $ 120 billion a month. But it excludes, for the moment, to raise its interest rates.
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Eighteen months after the beginning of the Pandemic of Covid-19, the Federal Reserve (Fed) decided to relieve its support for the US economy. For months, the institution chaired by Jerome Powell has been taken into force between inflationary pressures and the disappointing resumption of employment, hampered by the delta variant and bottlenecks in the economy.
The central bank will not start by going up its interest rates, but by reducing its purchases of US Treasury bills, which currently reach $ 120 billion (103 billion euros) per month. This measure, inaugurated after the great financial crisis of 2008, had been resumed in March 2020, when the CVIV-19 crisis broke out. It made it possible to ensure liquidity in the markets and reduce the long-term interest rates required by investors.
At the beginning of the crisis, the EDF even had even extended its program of purchases to the debt of private companies. This exceptional arrangement, interrupted at the end of 2020, had allowed for example to save the carnival cruises, which were able to refinance, while their liners were empty, nailed to quay or off Miami.
These measures have resulted in an artificially low maintenance of long-term interest rates, which are normally determined by the markets (the Fed does not set rates in short term) and by quasi-direct financing of deficits by the Fed, which acquires the debt of the American state. By bustling everything, the Fed’s balance sheet has doubled since March 2020, reaching the astronomical level of $ 8,500 billion in late October, including € 4,500 billion and 2,500 billion public mortgage claims. As a comparison, the total US public debt market is $ 21,900 billion, the equivalent of one year of gross domestic product (GDP).
Securities purchases (Treasury bills and public mortgage) will be reduced to $ 105 billion in November, at 90 billion in December, and should fall to zero in June 2022. The bank states that it will adjust. according to the economic circumstances. At the time of the EDF announcement, the US Treasury has announced a decline of $ 84 billion in its funding needs for the next three months, particularly because the various biden plans are not voted and that exceptional measures for counter the effects of COVID-19 expire. This announcement makes it possible to balance the market, deprived of the purchases of the Fed. When the Fed released its statement Wednesday, November 3, the 10-year rate yield increased from 1.55% to 1.6%.
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