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Implementing Monetary Policy:
What’s Working and Where We’re Headed
Roberto Perli, System Open Market Account (SOMA) Manager

NABE Annual Conference
10/10/2023

With abundant reserves, rates are largely unresponsive to changes in supply;
when reserves are ample, rates will drift somewhat higher
1
Stylized Reserve Demand Curve
Rate

Scarce

Ample
Abundant

Reserves

The Federal Reserve has maintained strong rate control, even though the size
and composition of its balance sheet has varied a lot
2

3
Federal Reserve Liabilities and Capital

Federal Reserve Assets
Treasuries

Agency MBS

Loans

$ Billions

Other Assets

10,000

Thousands

Thousands

$ Billions

9,000
8,000

10,000

6,000

6,000

5,000

5,000

4,000

4,000

3,000

3,000

2,000

2,000

1,000

1,000

Jan-20

Jul-20

Jan-21

Jul-21

Source: Board of Governors of the Federal Reserve System

Jan-22

Jul-22

Jan-23

Jul-23

ON RRP

8,000
7,000

Jul-19

Reserve Balances
Other Liabilities and Capital

9,000

7,000

0
Jan-19

Currency in Circulation
Treasury General Account

0
Jan-19

Jul-19

Jan-20

Jul-20

Jan-21

Jul-21

Source: Board of Governors of the Federal Reserve System

Jan-22

Jul-22

Jan-23

Jul-23

The EFFR has been well within the target range since the start of the pandemic
4
Administered and Overnight Rates (Spread to Bottom of Target Range)
Target Range

Percent

EFFR

ON RRP

IORB

0.4

Start of current
tightening cycle

Move to ELB
0.3

0.2

0.1

0.0

-0.1

-0.2
Jan-19

Jul-19

Jan-20

Source: Federal Reserve Bank of New York

Jul-20

Jan-21

Jul-21

Jan-22

Jul-22

Jan-23

Jul-23

In March, banks turned to private markets, particularly FHLBs, for funding;
MMFs reallocated from the ON RRP and toward FHLB short-term debt
5

6
Deposit Runoff vs Other Borrowings
for Domestically Chartered Commercial Banks in the US
Other Borrowings ex-Fed

$ Billions
700

Federal Reserve Credit

Deposit Runoff

ON RRP Usage
$ Billions
2,500

2000

1800

2,400
600

1600

500

2,300

400

2,200

1400

1200

1000

300
2,100

800

200

600

2,000

100

400

0

1,900
200

-100
4-Jan

18-Jan

1-Feb

15-Feb

1-Mar

Note: Changes since January 4, 2023.
Source: Board of Governors of the Federal Reserve System

15-Mar

29-Mar

12-Apr

26-Apr

1,800
4-Jan

0

18-Jan

1-Feb

15-Feb

Source: Federal Reserve Bank of New York

1-Mar

15-Mar

29-Mar

12-Apr

26-Apr

After the suspension of the debt limit, Treasury rapidly rebuilt the TGA;
reallocations from ON RRP accommodated the rapid increase in Treasury debt
7
Treasury General Account, ON RRP, and Reserve Balances
ON RRP (LHS)

Reserves (LHS)

TGA (RHS, inverted)

$ Billions

$ Billions

3600

-1,200

3200

-800

2800

-400

2400

0

2000

400

Lower ON RRP,
Higher TGA

1600

800

Debt Limit Suspended
1200
Jan-23

1,200
Feb-23

Mar-23

Apr-23

May-23

Source: Board of Governors of the Federal Reserve System, Federal Reserve Bank of New York

Jun-23

Jul-23

Aug-23

Sep-23

Oct-23

MMFs continued to be responsive to small price incentives, purchasing Treasury
bills trading at only a modest premium to other market rates
8
Treasury Bill Yield Spreads to OIS Rates
1M

3M

6M

Basis Points
40

Debt Limit Suspended
20

0

-20

-40

-60

-80
Jan-23

Feb-23

Mar-23

Apr-23

Note: Spreads to EFFR-referencing OIS. Series are 5-day moving averages.
Source: Bloomberg

May-23

Jun-23

Jul-23

Aug-23

Sep-23

Oct-23

Since the start of runoff in June 2022, securities holdings have declined by over
$1 trillion, partly offset by a rise in Federal Reserve lending
9

Select Federal Reserve Balance Sheet Items
Assets
$ BILLIONS

Liabilities and Capital

6/1/2022

CURRENT

Treasuries

5,771

4,930

Agency MBS

2,707

2,480

21

179

158 Treasury General Account

416

367

-50 Reserve balances

Loans
Other assets

CHANGE $ BILLIONS

6/1/2022

CURRENT

CHANGE

-840 Currency in circulation

2,230

2,276

45

-228 ON RRP

1,965

1,342

-623

781

679

-102

3,357

3,241

-117

582

418

-163

8,915

7,956

-959

Other liabilities and capital
Total

8,915

7,956

Note: Current level as of 10/4/2023.
Source: Board of Governors of the Federal Reserve System

-959 Total

Passive redemptions, subject to caps, enable a smooth and predictable
runoff process
10

11
SOMA Agency MBS Runoff

SOMA Treasury Runoff
$ Billions

Cumulative Runoff

Monthly Runoff

Redemption Cap

Cumulative Runoff

$ Billions

900

900

800

800

700

700

600

600

500

500

400

400

300

300

200

200

100

100

0

0

Monthly Runoff

Redemption Cap

-100

-100
Jun-22

Aug-22

Oct-22

Source: Federal Reserve Bank of New York

Dec-22

Feb-23

Apr-23

Jun-23

Aug-23

Jun-22

Aug-22

Oct-22

Dec-22

Feb-23

Apr-23

Jun-23

Aug-23

Note: Monthly runoff reflects purchases that occurred before June 2022, but settled in the subsequent months.
Source: Federal Reserve Bank of New York

The reserve demand curve may have changed over recent years;
the point of transition between abundant and ample reserves is uncertain
12
EFFR-IORB Spread vs Reserve Balances
EFFR - IORB
(Basis Points)

2018

2019

2020

2021

2022

2023

20

10

0

-10

Current
-20
1,000

2,000

3,000
Reserve Balances ($ Billions)

Note: Weekly observations.
. Source: Board of Governors of the Federal Reserve System, Federal Reserve Bank of New York

4,000

The Desk will continue to carefully monitor reserve conditions
13

Market pricing and volumes

Reserve
Conditions
Monitoring

Fed balance sheet data

Market intelligence through outreach

Senior Financial Officer Survey (SFOS)