Federal Reserve's Williams: Bond Purchases Expected to Start Soon

On Friday, November 8th, Federal Reserve's Williams stated that the Fed's decision from last week to halt the reduction of its bond holdings might soon require the implementation of bond purchases to expand its balance sheet. Williams said, "The subsequent step in the balance sheet strategy will be to evaluate when the level of reserves transitions from its current state of being slightly above ample to being ample." He further added that once this occurs, "it will be the appropriate time to initiate a gradual process of asset purchases." Williams also indicated, "Given the recent persistent pressures in the repo market and other indications that reserves are shifting from being ample to being slightly above ample, I anticipate that we will soon reach an ample level of reserves." Some analysts expect the Fed to commence expanding its asset size through bond purchases in the first quarter of the next year. Williams cautioned that it is difficult to precisely determine the specific timing. "I am closely observing various market indicators related to the federal funds market, repo market, and payment markets to assist in assessing the status of reserve requirements." He also warned that maintaining sufficient liquidity through bond purchases is not a stimulus measure. (FX678)