Last week, the Fed quietly bought $43.6 billion in government bonds without any official announcement, raising concerns that the Fed is silently returning to quantitative easing (QE) policy. On May 8 alone, the Fed purchased $8.8 billion in 30-year bonds. QE is usually announced publicly, but this time the action occurred quietly, leading many to call it 'stealth QE.'
The reason may stem from the bond auction on May 9, when the U.S. Treasury only sold $78 billion out of a total offering of $150 billion. To avoid soaring interest rates that could destabilize the market, the Fed is said to have intervened by purchasing $20 billion in bonds to stabilize the situation. Otherwise, interest rates on bonds would rise if people panicked and sold.
This is not a typical balance sheet rebalancing activity. This move indicates that the Fed is trying to stabilize the market without causing panic among investors.