Insights from MMF Portfolio Allocations amid Balance Sheet Normalization
Year: 2025
Type: article
Abstract: In June of 2022, the Federal Reserve (Fed) began to reduce its securities holdings and decrease the size of its balance sheet, a process known as balance sheet runoff. The decline in the Fed's assets mechanically results in a decline in Fed liabilities, and on net since June 2022, most of the decline in securities holdings has been associated with a decline in use of the Fed's overnight reverse repurchase (ON RRP) facility, a facility in which eligible counterparties are able to enter into an overnight reverse repo agreement with the Fed, earning the ON RRP rate on funds held at the facility. While daily take-up at the ON RRP facility remained elevated above $2 trillion between the start of balance sheet runoff in June 2022 through May 2023, starting in June 2023, take-up at the ON RRP facility began to decline sizably, with lower ON RRP take-up driven primarily by money market mutual funds (MMFs) reallocating cash out of the facility.2
Source: FEDS Notes
Author: Erik Bostrom
Institutions: Federal Reserve, Federal Reserve Board of Governors
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: hybrid
OpenAlex ID: W4408151888