Fed quietly buys bonds: Is “covert QE” making a comeback?

Last week, the U.S. Federal Reserve (Fed) purchased $43.6 billion in government bonds without official announcement – including $8.8 billion in 30-year bonds just on May 8. This move has led many to suspect that the Fed is quietly returning to a policy of quantitative easing (QE).

One reason could be that the bond auction on May 9 did not meet expectations, as the Treasury only sold $78 billion out of $150 billion. To avoid a spike in interest rates that could destabilize the market, the Fed is believed to have intervened by purchasing $20 billion in bonds to maintain stability.

Unlike typical rebalancing activities, this action indicates that the Fed is opting for discreet intervention to prevent market panic – a form of “covert QE” that has not been seen during the recent tightening of policy.