The Fed’s Balance Sheet Runoff and the ON RRP Facility

Cipriani, Marco; Clouse, James A.; Logan, Lorie; Martin, Antoine; Riordan, Will

Discussion Paper

The Fed’s Balance Sheet Runoff and the ON RRP Facility

Abstract: A 2017 Liberty Street Economics post described the balance sheet effects of the Federal Open Market Committee’s decision to cease reinvestments of maturing securities—that is, the mechanics of the Federal Reserve’s balance sheet “runoff.” At the time, the overnight reverse repo (ON RRP) facility was fairly small (less than $200 billion for most of July 2017) and was not mentioned in the post for the sake of simplicity. Today, by contrast, take-up at the ON RRP facility is much larger (over $1.5 trillion for most of 2022). In this post, we update the earlier analysis and describe how the presence of the ON RRP facility affects the mechanics of the balance sheet runoff.

Keywords: balance sheets; Federal Reserve; money market funds; overnight reverse repo (ON RRP);

JEL Classification: G2; E5;