Brian P Sack: The SOMA portfolio at $ trillion Remarks by Mr Brian P Sack, Executive Vice President of the Federal Reserve Bank of New York, before the Money Marketeers of New York University, New York, 20 July 2011. *  *  *  Thank you for inviting me here tonight to give these remarks. These events organized by the Money Marketeers provide an excellent venue to talk about the Federal Reserve’s involvement in financial markets, given the focus and expertise of your group. As you know, the Federal Reserve recently completed its second round of large-scale asset purchases, known inside the Fed as LSAP2 and to everyone else in the world as QE2. With the program now in the books, I thought it would be a good time to look back and assess the experience with LSAP2. Specifically, I will discuss the effectiveness of the program relative to its stated objectives, and I will describe some the operational challenges that we faced in implementing it. Lastly, I will touch on several issues related to the potential evolution of the Federal Reserve’s balance sheet going forward. As always, my comments do not necessarily reflect the views of the Federal Open Market Committee (FOMC) or any other members of the Federal Reserve System. LSAP2 and the Federal Reserve’s balance sheet Let me start with a few facts.
Indeed, there are no signs that trading activity has been notably impaired for Treasury coupon  6  In my own remarks before the program began, I referred to asset purchases as an “imperfect policy tool” because of the limits on their effectiveness. See Brian Sack (2010), “Managing the Federal Reserve’s Balance Sheet”, remarks at the 2010 CFA Institute Fixed Income Management Conference, Newport Beach, California, October 4. BIS central bankers’ speeches  3  securities, even in those issues for which our holdings are particularly high. 7 Moreover, the market has not encountered any meaningful problems with delivery and settlement of Treasury securities. 8 Lastly, I should note that the market seems to have adjusted fairly well so far to the end of the purchase program. The pace of the Desk’s purchases fell back sharply at the end of June, as we moved from expanding the portfolio to simply reinvesting principal payments. In particular, our purchases slowed from an average pace of about $ billion per month through June to an anticipated pace of about $ billion per month going forward. We do not expect this adjustment to our purchases to produce significant upward pressure on interest rates or a tightening of broader financial conditions, given our view that the effects of the program arise primarily from the stock of our holdings rather than the flow of our purchases.