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Fed begins effort to expand its balance sheet, buys $7.5B in T-bills

The Federal Reserve initiated its effort to expand its balance sheet and boost bank reserves, as the Federal Reserve Bank of New York trading desk purchased $7.50 billion worth of Treasury securities on Oct. 16.

The Fed recently announced its plan to purchase $60 billion worth of Treasury bills per month as part of its longer-term strategy to boost liquidity in the financial system.

The operation comes after volatility rocked short-term money markets in mid-September, causing a spike in the overnight repo rate. Since then, the Fed has helped meet liquidity demands by making temporary purchases in the overnight markets.

The latest such repo purchase also occurred Oct. 16, as the New York Fed injected $75.0 billion into markets via overnight repo agreements.

That operation did not fully satisfy buyers' liquidity demands, as companies offered $80.35 billion in securities. The Fed took in $72.59 billion in Treasurys and $2.41 billion in mortgage-backed securities.