The Federal Reserve has begun purchasing short-term Treasury bills to address liquidity strains in the money markets, starting December 12, 2025, with investments of approximately $40 billion. This initiative aims to enhance market liquidity and facilitate better control over interest rates, especially following the conclusion of the Fed’s quantitative tightening program that reduced its balance sheet from $9 trillion to $6.6 trillion.
The decision comes amidst tightening liquidity due to increased Treasury bill issuance and the impact of a recent U.S. government shutdown, which elevated the Treasury General Account balance while draining funds from the banking system. Analysts consider this policy shift a timely intervention, particularly as year-end approaches, a period traditionally marked by heightened money-market volatility.
The New York Federal Reserve’s operations desk plans to conduct roughly $14.4 billion in reinvestment purchases along with around $40 billion in reserve management purchases from December 12 to January 14. These actions are meant to manage liquidity and maintain stable market conditions.
Investors expect relief in the money markets as the Fed resumes these purchases, which should alleviate upward pressure on borrowing rates in the U.S. overnight repurchase agreements (repo) market. Rates in this sector have surged recently, highlighting the need for intervention.
Overall, the Federal Reserve’s resumption of Treasury bill purchases underscores its commitment to ensuring market stability and effective monetary policy execution. By addressing liquidity issues and ensuring sufficient reserves, the Fed aims to support the smooth functioning of financial markets and uphold its monetary policy objectives.
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