The Federal Reserve (Fed) implements monetary policy through an ample reserves framework, where a sufficient supply of reserves allows the federal funds rate and other short-term interest rates to be primarily controlled through administered rates set by policymakers. In this article, we provide insight into some of the tools the Fed uses to implement monetary policy, with a focus on recent changes to standing repo operations.
Achieving Interest Rate Control
After assessing the economic outlook, the Federal Open Market Committee (FOMC) determines its monetary policy stance—whether it needs to stimulate, curb, or maintain economic activity—and announces a target range for the federal funds rate. The federal funds rate is the interest rate at which banks can borrow reserves, or federal funds, in private markets on an unsecured, overnight basis. To help ensure that federal funds trade at rates within the target range, the Board of Governors sets the rate for interest on reserve balances (IORB) consistent with the FOMC’s policy stance. The logic is simple: Banks have little incentive to lend funds at rates below what they can earn risk-free from the Fed. This makes the IORB rate a strong influence on bank behavior in short-term funding markets and supports a floor on rates within the target range.
The Fed also employs two complementary tools alongside IORB: overnight reverse repo (ON RRP) operations and standing repo (SRP) operations. At each FOMC meeting, the Committee sets the rates for these operations to support rate control. ON RRP operations help limit downward pressures on overnight money market rates, while SRP operations limit upward pressures. They further ensure that the federal funds rate remains within its target range.
Some money market participants, including money market funds and government-sponsored enterprises, are ineligible to receive IORB. These firms could therefore be willing to lend funds in the market at rates below IORB, which could potentially drag the federal funds rate below its target range. ON RRP operations offer these market participants an alternative risk-free investment option at a rate consistent with the FOMC’s policy stance. This ensures nonbank institutions that are RRP counterparties have little incentive to lend below the ON RRP rate and strengthens the floor on money market rates.
Similarly, to help establish a ceiling on overnight money market rates, SRP operations offer eligible counterparties an alternative funding option. This reduces the incentive for SRP counterparties to secure funds in the market at rates above the SRP rate. Now that reserves have declined to ample levels and upward pressures on money market rates have increased, SRP operations perform a crucial function in the ample reserves regime.
Standing Repo Operations Support Interest Rate Control
Repos are a common secured money market transaction in which a counterparty purchases securities from another counterparty with an agreement to resell them later. When such a transaction is executed by the New York Fed’s Open Market Trading Desk (the Desk), it temporarily boosts reserve balances in the banking system. The Desk has long supported repo operations in its broader set of tools, with standing repo operations starting in July 2021.
To support monetary policy implementation and smooth market functioning, the Desk currently conducts standing repo operations two times a day. Until recently, use of standing repo operations was limited because liquidity was abundant and the SRP rate was generally higher than broader repo market rates. More recently, as reserve levels decreased, participation in standing repo operations became more common. In an ample reserves regime, these operations are expected to play a more active role in rate control on days of elevated pressures in money markets. As Federal Reserve Chair Jerome Powell recently stated, standing repo operations “are a critical tool to ensure that the federal funds rate remains within its target range, even on days of elevated pressures in money markets…and should be used when economically sensible.”
To underscore the important role of standing repo operations in monetary policy implementation, at the December 2025 meeting, the FOMC eliminated the aggregate $500 billion daily limit on SRP operations that had been in place since their introduction. As New York Fed President Williams noted, “Like [reverse repo operations], [standing repo operations’] effectiveness relies on market participants availing themselves of [these operations] based on market conditions, free of worries about stigma or other impediments.”
The New York Fed provides announcements, operational results, historical data, and further detail on the specifics of standing repo operations on its website.
A Range, Some Rates, and Daily Operations
Together, IORB, overnight reverse repo operations, and standing repo operations create a comprehensive set of tools that are designed to work together to support interest rate control, making them essential for monetary policy implementation and smooth market functioning. They have proven effective in helping to transmit policy decisions that support the Fed’s goals of maximum employment and price stability.
Christian Cabanilla is an advisor in the New York Fed’s Markets Group.
Roberto Perli is the Manager of the System Open Market Account (SOMA) and a senior leader in the New York Fed’s Markets Group.
Julie Remache is the Deputy Manager of the System Open Market Account and a senior leader in the New York Fed’s Markets Group.
The views expressed in this article are those of the contributing authors and do not necessarily reflect the position of the New York Fed or the Federal Reserve System.
