New York Fed official: There is no preset path for Treasury purchases, and we will closely monitor funding market pressures in October.

Roberto Perli, head of the New York Fed's Markets Group, said the Federal Reserve will continue to assess the level of reserves in the banking system, and that there is no preset path for Treasury bill purchases used for reserve management, which could be readjusted in the future depending on market conditions. Speaking at an event in New York on Tuesday during prepared remarks, Perli said that earlier this year the Federal Open Market Committee (FOMC) gave the New York Fed's Open Market Operations desk some discretion to adjust the size of reserve management purchases as needed. Currently, such purchases are at zero. Perli noted that previous adjustments were made in response to "evolving market conditions," and that the New York Fed stands ready to adjust again if necessary in the future to implement the FOMC's policy of maintaining banking system reserves at an "ample" level. Perli said the New York Fed will closely monitor the views of senior financial officers at large financial institutions on market conditions, as well as other signs of stress in funding markets. He specifically noted that the market widely expects another large round of net Treasury bill issuance in October, so the New York Fed will watch how the market responds. Earlier this month, Fed officials announced they would not purchase Treasury bills for reserve management purposes until mid-October, effectively extending a pause that began in August. However, the New York Fed said at the time that it still planned about $15.6 billion in reinvestment purchases. This means the pause in reserve management purchases does not represent a complete halt by the Fed to purchases in the U.S. Treasury market; the two differ in purpose and nature. Perli has also previously said that the Fed's monthly pace of Treasury bill purchases can be adjusted up or down depending on the market environment, and that there is no fixed purchase trajectory. The Fed began conducting reserve management purchases after ending its balance sheet reduction process last year, commonly known as quantitative tightening, to ensure the banking system has ample reserves and to keep money market rates running smoothly. Therefore, such Treasury bill purchases are primarily a technical operation by the Fed to manage banking system liquidity, rather than a new asset purchase program with a preset size and duration. A key focus of Perli's remarks this time is the upcoming supply of U.S. Treasury bills. As the market expects the U.S. Treasury to conduct another relatively large round of net Treasury bill issuance in October, liquidity conditions in short-term funding markets could face a test. The New York Fed will focus on whether the market can smoothly absorb the new supply and whether stress emerges in short-term funding markets such as repurchase agreements. If market conditions change, the Fed can adjust the size of reserve management purchases accordingly to ensure reserves remain within the "ample" range required by the FOMC. This also means that although reserve management purchases have currently fallen to zero, whether purchases resume in the future will depend on the level of reserves and money market functioning, rather than proceeding on a fixed timetable. In addition to reserve management, Perli also discussed the importance of central clearing in the repo market. He said that central clearing of repo transactions has multiple benefits. If the Fed's operational framework relies more on repo tools in the future, these advantages will become even more important, because central clearing can enhance counterparties' ability to intermediate liquidity throughout the financial system. Earlier the same day, New York Fed President Williams also said at the same conference that the transition of U.S. Treasuries and repo transactions collateralized by U.S. Treasuries to a central clearing mechanism is progressing faster than originally planned.