During its meeting on September 19-20, 2017, the Federal Open Market Committee (FOMC) directed the Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York to initiate, in October 2017, the program to gradually reduce the reinvestment of principal payments from the Federal Reserve’s securities holdings that is described in the Committee’s June 2017 addendum to its Policy Normalization Principles and Plans. Specifically, the Committee directed the Desk to reinvest each month’s principal payments from Treasury securities, agency debt, and agency mortgage-backed securities (MBS) only to the extent that such payments exceed gradually rising caps.
The schedule of monthly caps consistent with the Committee’s September 20 decision and the June 2017 addendum is as follows:
MONTHLY CAPS ON SOMA SECURITIES REDUCTIONS TREASURY SECURITIES AGENCY SECURITIES* Oct – Dec 2017 $6 billion $4 billion Jan – Mar 2018 $12 billion $8 billion Apr – Jun 2018 $18 billion $12 billion Jul – Sep 2018 $24 billion $16 billion From Oct 2018** $30 billion $20 billion*Applies to combined principal payments of agency debt and agency MBS.
**Once caps reach their maximum amounts, they will remain in effect until the Committee judges that the Federal Reserve is holding no more securities than necessary to implement monetary policy efficiently and effectively.
For Treasury securities, the Desk will roll over at auction the principal payments from the Federal Reserve’s holdings of Treasury securities maturing during each calendar month that exceed the cap amount for that month. The Desk will allocate that rollover amount across the month’s maturity dates in proportion to total maturities of SOMA Treasury holdings on each date. Consistent with current practice, rollovers will continue to be accomplished by placing non-competitive bids at Treasury auctions; the bids will be allocated across the securities being issued in proportion to their announced offering amounts. The initial cap will first be applied to the October scheduled maturities, which occur on October 31.
For agency securities, the Desk will reinvest in agency MBS the principal payments from the Federal Reserve’s holdings of agency debt and agency MBS received during each calendar month that exceed the cap amount for that month. Consistent with current practice, the Desk’s reinvestment purchases will continue to be concentrated in newly-issued agency MBS in the To-Be-Announced (TBA) market. The planned amount of reinvestments in agency MBS that is anticipated to take place over each monthly period will be announced on or around the ninth business day of the month and will generally be conducted over the subsequent one-month period until the next announcement. The initial cap will first be applied to the October planned purchases, which will be announced on October 13, the ninth business day of the month.