Fed's Perli: Treasury Purchases Significantly Reduced After April 15

Perli, a New York Fed official, reiterated previous Fed guidance in a Thursday speech in New York. The reduction in the monthly pace of Treasury securities bought by the Fed is tied to the U.S. income-tax season, which concludes next month.

The Treasury Department's bank account at the Fed swells as tax payments roll in, causing reserves in the banking system to fall. After April 15, the government will send out tax-refund payments, which will create more bank reserves as payments flow to customers' accounts.

This adjustment allows the Fed to throttle back its bond purchases without depriving the banking system of necessary reserves. The current bond-buying program, in place since late last year, ensures banks have adequate access to reserves for daily operations, distinguishing it from previous economic stimulus efforts following the 2008-09 financial crisis and the Covid-19 pandemic.

The Fed began growing its balance sheet by approximately $40 billion a month in December after declining reserves caused strains in overnight lending markets last fall. Over time, the Fed expects its balance sheet to remain in a gradual expansion mode to accommodate economic growth and rising demand for paper U.S. currency.

Kevin Warsh, a nominee to succeed Jerome Powell as Fed chair, has prioritized shrinking the Fed's balance sheet, with proposals focusing on regulatory reforms to encourage banks to reduce desired reserve holdings. This would allow the Fed to shrink its bondholdings without straining overnight funding markets.