Row 3733

Row ID: 3733 | Dataset Entry | Axioma AXP Content Repository

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u/skybrian2 good question. Here's [some reading material on the subject](https://www.stlouisfed.org/in-plain-english/the-fed-implements-monetary-policy#:~:text=In%20short%2C%20the%20Fed%20adjusts,to%20serve%20as%20a%20ceiling) from the St. Louis Fed.

The part you're probably looking for is the following...

>To provide support, the Fed offers the overnight reverse repurchase agreement facility to a broader set of large financial institutions: They can earn the overnight reverse repurchase agreement offering rate, or ON RRP rate, by depositing funds with the Fed at this facility. So, this second administered rate helps set a floor for the federal funds rate.

and

>The discount rate is the interest rate charged by the Fed for loans it makes through the Fed’s discount window. Because banks will not likely borrow at a higher rate than they can borrow from the Fed, the discount rate acts as a ceiling for the federal funds rate.

and

>In short, the Fed adjusts two administered rates, interest on reserve balances and ON RRP, to keep the federal funds rate within the target range determined by the FOMC. And the Fed adjusts the discount rate to serve as a ceiling. The Fed usually adjusts the three administered rates (interest on reserve balances, ON RRP and discount) by the same amount and at the same time so they move up and down together.

The simple answer is that the Fed uses open market operations as *supplementary* to these other policy tools as a comprehensive set to keep the Federal Funds Rate within the upper and lower bounds. Because it's not the only tool being utilized to maintain the upper and lower bounds, they can conduct open market operations without negatively impacting adherence to the target range. The extent by which the Fed can do this is limited by available *slack* in the market i.e. if reserves are tight and cash is expensive in the open market, if the fed were to conduct large scale asset sales during such an environment they could hypothetically risk pushing the rate out of their target range temporarily as you elude to.

The more complicated answer involves discussion of yield curve control, FOMC communication to set expectations in the market, and the types of assets being exchanged. But these are probably beyond the scope of the conversation. If you wanted to learn more on it, however, you can look into those topics.

E: How do I do links these days? I feel old.

E2: Got it.

FieldValue
text u/skybrian2 good question. Here's [some reading material on the subject](https://www.stlouisfed.org/in-plain-english/the-fed-implements-monetary-policy#:~:text=In%20short%2C%20the%20Fed%20adjusts,to%20serve%20as%20a%20ceiling) from the St. Louis Fed. The part you're probably looking for is the following... >To provide support, the Fed offers the overnight reverse repurchase agreement facility to a broader set of large financial institutions: They can earn the overnight reverse repurchase agree…
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datetime 2024-03-21
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Raw Record

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  "text": "u/skybrian2 good question. Here's [some reading material on the subject](https://www.stlouisfed.org/in-plain-english/the-fed-implements-monetary-policy#:~:text=In%20short%2C%20the%20Fed%20adjusts,to%20serve%20as%20a%20ceiling) from the St. Louis Fed.\n\nThe part you're probably looking for is the following...\n\n>To provide support, the Fed offers the overnight reverse repurchase agreement facility to a broader set of large financial institutions: They can earn the overnight reverse repurchase agreement offering rate, or ON RRP rate, by depositing funds with the Fed at this facility. So, this second administered rate helps set a floor for the federal funds rate.\n\nand\n\n>The discount rate is the interest rate charged by the Fed for loans it makes through the Fed’s discount window. Because banks will not likely borrow at a higher rate than they can borrow from the Fed, the discount rate acts as a ceiling for the federal funds rate.\n\nand\n\n>In short, the Fed adjusts two administered rates, interest on reserve balances and ON RRP, to keep the federal funds rate within the target range determined by the FOMC. And the Fed adjusts the discount rate to serve as a ceiling. The Fed usually adjusts the three administered rates (interest on reserve balances, ON RRP and discount) by the same amount and at the same time so they move up and down together.\n\nThe simple answer is that the Fed uses open market operations as *supplementary* to these other policy tools as a comprehensive set to keep the Federal Funds Rate within the upper and lower bounds. Because it's not the only tool being utilized to maintain the upper and lower bounds, they can conduct open market operations without negatively impacting adherence to the target range. The extent by which the Fed can do this is limited by available *slack* in the market i.e. if reserves are tight and cash is expensive in the open market, if the fed were to conduct large scale asset sales during such an environment they could hypothetically risk pushing the rate out of their target range temporarily as you elude to.\n\nThe more complicated answer involves discussion of yield curve control, FOMC communication to set expectations in the market, and the types of assets being exchanged. But these are probably beyond the scope of the conversation. If you wanted to learn more on it, however, you can look into those topics.\n\nE: How do I do links these days? I feel old.\n\nE2: Got it.",
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