Thursday, November 11, 2010
As was promised by the Fed, details of the first month of QE2 purchases are spelled out here. This is a bit like what the Fed does in normal times on a daily basis. In pre-crisis mode, the Fed would make a prediction about what would affect reserves on a daily basis, and then intervene in the overnight market in an attempt to hit the fed funds rate target. Now, they plan to buy $75 billion in Treasury securities each month, and a prediction is made concerning how mortgage prepayments will affect the stock of agency securities and mortgage-backed securities (MBS) in the Fed's portfolio. The open market desk then attempts to offset that. For the next month, the forecast is that $30 billion in agency securities and MBS will run off.