(Bloomberg) -- The Federal Reserve said Thursday it will buy about $10 billion of Treasury bills this period, unchanged from the previous cycle, as policymakers seek to bolster reserves in anticipation of a liquidity drain in the coming months.
The New York Fed's open markets desk plans to conduct the reserve management purchases over the monthly period ending July 13, according to its website. It also plans to conduct about $16.5 billion in reinvestment purchases over the same time.
Even though the Fed is confident in the smooth functioning of funding markets, policymakers remain cautious given that the Treasury is expected to increase bill supply and grow its cash balance to more than $1 trillion, which would drain reserves. All that cash must come from somewhere, and the removal of liquidity often drives up funding costs as bank reserves are removed from the financial system.
The Fed abruptly stopped shrinking its balance sheet — a process known as quantitative tightening — at the end of 2025 and pivoted to adding reserves back into the financial system by buying short-term Treasuries due in less than a year.
In December, the central bank began buying about $40 billion of bills each month in a bid to ease the pressures that were building in short-term rates. At that time, then-Chair Jerome Powell said the Fed was "front-loading" its purchases to ensure there were enough reserves through the April tax season.
The central bank sharply reduced RMPs to $25 billion in April, which was greater than anticipated as policymakers had conveyed that the decrease could be "somewhat gradual" to account for uncertainty and other factors. It reduced them to $10 billion last month, another sharp pullback that surprised market participants.
New York Fed's Roberto Perli said last month the central bank's T-bill purchases are not on a pre-determined course, and he and his colleagues "stand ready" to adjust the pace of RMPs "up or down as necessary to maintain reserves within the ample range."
Funding conditions have been soft across the board during the past month as cash has overwhelmed available collateral: banks have been parking more money in short-term markets, and money-market fund assets have reached all-time highs. In addition, the Treasury Department has been slashing its supply of bills despite boosting issuance after seasonal reductions in April.
Bank reserves rose $65.8 billion to $3.111 trillion in the week to June 10, and were up from $2.85 trillion at the end of last year.
(Updates bank reserve level in last paragraph.)
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