Fed Reserve coupons

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What is the meaning of this?

Fed said it added $1.151 bln via coupon pass NEW YORK, May 26 (Reuters) - The Federal Reserve said on Wednesday that it added $1.151 billion in permanent reserves to the banking system by buying coupons maturing May 31, 2003 to May 15, 2017 for delivery on Thursday.

There were many exclusions.

Earlier on Wednesday, the Federal Reserve said it added $3.5 billion in temporary reserves to the banking system through overnight system repurchase agreements.


-- fly .:. (.@...), May 26, 1999


Warning: I am not a bond market expert.

I believe that what you are quoting here explains that the Federal Reserve Bank purchased a little over $1 billion dollars worth of US Treasury Bonds, on the open market. Because the Federal Reserve pays for these bonds by simply creating the money to buy them, this has the effect of putting more dollars into the financial system than were there the day before. This is known as "high-powered" money, in that it creates a multiplier effect as it ripples into and back out of the banks downstream from the Fed. Eventually, this action will create something closer to $20 billion in actual circulation. This is a fairly common practice by the Fed. The important thing is that the rate of growth in new money doesn't exceed the rate of real economic growth.

IIRC, the addition of $3 billion to temporary reserves is simply meant to cover an immediate shortfall in overnight bank reserves and the money doesn't stay in the system for long. I believe it is more of an accounting measure -- but I am not as certain of my footing on this ground.

If there are better informed folks, they can chime in and correct me.

-- Brian McLaughlin (brianm@ims.com), June 03, 1999.

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