These purchases will begin on October 15 in response to the recent turmoil in the short-term money market, which pushed the Federal Fund Target Rate to the top of the target range and, at least once, to the top of the target range. The Federal Reserve said the "technical" measure would last at least until the second quarter of 2020, and Federal Reserve Chairman Powell indicated earlier this week that it would be introduced.
The Federal Reserve also said it would continue to operate daily repurchase agreements until January next year, injecting funds into the overnight lending market.
U.S. President Trump has been criticizing Powell and his colleagues for months, first by demanding that Powell stop shrinking his balance sheet and, more recently, by completely relaxing monetary policy.
On Friday, the Federal Reserve took pains to stress that its new balance sheet operation was not a response to the call. It was totally different from the purchase of trillions of dollars of Treasuries and mortgage-backed securities (MBS) during and after the financial crisis.
These bond purchases, known as quantitative easing (QE), aim to drive down long-term interest rates to stimulate lending and investment. A new round of short-term bond purchases is just to keep the money market running smoothly.
Therefore, the Federal Reserve pointed out that the new round of debt purchases "will have little impact on household and business spending decisions and overall economic activity levels," an explanation highlighted three times in a statement issued on Friday when the decision was announced.
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