The second part of the Federal Reserve’s response to the crisis and recession, besides the provision of liquidity to the financial system, involves both standard and less conventional forms of monetary policy. After reducing short-term interest rates nearly to zero, the Federal Open Market Committee (FOMC) provided additional monetary policy stimulus through largescale purchases of Treasury securities, agency mortgage-backed securities (MBS), and agency debt.
All told, the Federal Reserve purchased $ billion of Treasury securities and will conclude purchases of $ trillion of agency MBS and about $ billion of agency debt at the end of this month. The Federal Reserve’s purchases have had the effect of leaving the banking system highly liquid, with U.S. banks now holding more than $ trillion of reserves with Federal Reserve Banks.