Federal Reserve Quietly Buying Treasuries

Fed buys typically boost assets like stocks and real estate.

During the years the Federal Reserve was engaging in quantitative easing (QE), the bank would routinely purchase assets such as U.S. Treasuries. This buying stopped in October 2014, with the end of the QE program.

However, over the past few weeks, the central bank appears to have started buying up Treasuries again, with about $14 billion bought so far. That’s based on changes in the Federal Reserve’s balance sheet in recent weeks.

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  • If true, it suggests a few possibilities. First, the Fed mentioned during their rate cut decision in July that they would also stop unwinding their balance sheet, and the Treasury buys could simply be a purchase made from the proceeds of maturing assets.

    Second, it could be a stealthy way of easing without reducing interest rates further. A surprise or rapid interest rate cut could shock the market into thinking that the economy is worse than it is.

    Action to take: Typically, when the Fed has been a buyer of assets like Treasuries, other assets like stocks and real estate have headed clearly up. When the Fed has been a seller, other assets have struggled or even declined. If the Fed is quietly buying again, we may see a further rally in the market from here, albeit for reasons not related to economic or corporate fundamentals.