With USA Treasury sales reaching historic levels, the Federal Reserve’s purchase of treasuries under its QE2 program was detailed in its 2010 open market operations (OMO) report. Because the ability to reduce short term nominal interest rates was effectively constrained by the zero bound, the Federal Reserve Open Market Committee (FOMC – the management board of the Federal Reserve) used adjustments to the quantity and types of securities in the System Open Market Account (SOMA) as a way to provide further monetary accommodation during 2010.
The type and sizes of open market operations arranged in 2010 were profoundly influenced by policy actions taken during the year and, more broadly, since 2008. These policy actions include the reduction in the operating objective for the federal funds rate to its effective lower bound in December 2008 and the assorted actions aimed at influencing the total size and composition of outright holdings of domestic securities in the SOMA portfolio as a way to influence economic and financial conditions. The cumulative policy actions taken since the onset of the financial crisis have resulted in a SOMA portfolio of domestic securities that is much larger and more complicated in structure than it was before the crisis, and an associated level of reserve balance liabilities that is also unusually large. The eventual removal of policy accommodation in response to evolving conditions could also have significant implications for open market operations and the management of the Federal Reserve balance sheet at that time.
The Federal Reserves overall holding are shown on the above chart. Purchasing under QE2 is scheduled to end by June 2011.