Reply #14: Treasury says will park less funds at Fed

[Robbien]

WASHINGTON (MarketWatch) -- The Treasury Department announced Wednesday that it will sharply cut back on the money that it has parked at the Federal Reserve during the financial crisis.

Treasury has been selling more bonds than it needs and putting the proceeds in an account at the central bank. This has freed up the Fed to loan funds to the market without putting downward pressure on the target Federal funds rate.

In a brief statement, Treasury said that its Supplementary Financing Account at the Fed will be cut over time to $15 billion from $200 billion.

Analysts said that Treasury is taking the action to avoid hitting the federal debt ceiling.

Treasury has asked Congress to pass an increase in the debt ceiling, but lawmakers have taken no action. The ceiling is expected to be reached in mid-October.

Until Congress acts, Treasury must take some creative steps to avoid hitting the ceiling. Today's action frees up $185 billion worth of debt issuing capacity.

Fed officials said the decision would have no impact on policy.

Analysts have said the Treasury program would be a helpful tool when the central bank decides to mop up reserves.

Treasury would have to expand the amount of funds in its account at the Fed. This would drain some reserves from the system.

http://www.marketwatch.com/story/treasury-says-will-park-less-funds-at-fed-2009-09-16