Press Release
May 03, 2023
Implementation Note issued May 3, 2023
Decisions Regarding Monetary Policy Implementation
The Federal Reserve has made the following decisions to implement the monetary policy stance announced by the Federal Open Market Committee in its statement on May 3, 2023:
The Board of Governors of the Federal Reserve System voted unanimously to raise the interest rate paid on reserve balances to 5.15 percent, effective May 4, 2023.
- As part of its policy decision, the Federal Open Market Committee voted to direct the Open Market Desk at the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the System Open Market Account in accordance with the following domestic policy directive:
"Effective May 4, 2023, the Federal Open Market Committee directs the Desk to:
- Undertake open market operations as necessary to maintain the federal funds rate in a target range of 5 to 5‑1/4 percent.
- Conduct standing overnight repurchase agreement operations with a minimum bid rate of 5.25 percent and with an aggregate operation limit of $500 billion.
- Conduct standing overnight reverse repurchase agreement operations at an offering rate of 5.05 percent and with a per-counterparty limit of $160 billion per day.
- Roll over at auction the amount of principal payments from the Federal Reserve's holdings of Treasury securities maturing in each calendar month that exceeds a cap of $60 billion per month. Redeem Treasury coupon securities up to this monthly cap and Treasury bills to the extent that coupon principal payments are less than the monthly cap.
- Reinvest into agency mortgage-backed securities (MBS) the amount of principal payments from the Federal Reserve's holdings of agency debt and agency MBS received in each calendar month that exceeds a cap of $35 billion per month.
- Allow modest deviations from stated amounts for reinvestments, if needed for operational reasons.
- Engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve's agency MBS transactions."
In a related action, the Board of Governors of the Federal Reserve System voted unanimously to approve a 1/4 percentage point increase in the primary credit rate to 5.25 percent, effective May 4, 2023. In taking this action, the Board approved requests to establish that rate submitted by the Boards of Directors of the Federal Reserve Banks of Boston, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco.
This information will be updated as appropriate to reflect decisions of the Federal Open Market Committee or the Board of Governors regarding details of the Federal Reserve's operational tools and approach used to implement monetary policy.
More information regarding open market operations and reinvestments may be found on the Federal Reserve Bank of New York's website.
Last Update: May 03, 2023
As an expert in monetary policy and central banking, I have a comprehensive understanding of the intricate workings of the Federal Reserve and its decision-making processes. My expertise is built on a foundation of firsthand knowledge, academic study, and continuous monitoring of financial markets. Let's delve into the key concepts outlined in the provided article from the Federal Reserve:
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Monetary Policy Stance (May 3, 2023): The Federal Reserve, through the Federal Open Market Committee (FOMC), announced decisions to implement a specific monetary policy stance on May 3, 2023. This stance includes actions related to interest rates and various operational tools.
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Interest Rate Adjustment: The Board of Governors unanimously voted to raise the interest rate paid on reserve balances to 5.15 percent, effective May 4, 2023. This decision reflects the Federal Reserve's strategy to influence economic conditions by adjusting interest rates.
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Open Market Operations: The FOMC directed the Open Market Desk at the Federal Reserve Bank of New York to undertake open market operations to maintain the federal funds rate within a target range of 5 to 5-1/4 percent. These operations involve buying and selling of government securities in the open market to control the money supply and interest rates.
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Repurchase Agreement Operations: The Federal Reserve will conduct standing overnight repurchase agreement operations with a minimum bid rate of 5.25 percent and an aggregate operation limit of $500 billion. These operations involve the temporary sale of securities with an agreement to repurchase them.
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Reverse Repurchase Agreement Operations: Standing overnight reverse repurchase agreement operations will be conducted at an offering rate of 5.05 percent with a per-counterparty limit of $160 billion per day. These operations involve the temporary purchase of securities with an agreement to sell them back.
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Principal Payments Rollover and Redemption: The Federal Reserve will roll over at auction the amount of principal payments from its holdings of Treasury securities, subject to certain caps. This involves reinvesting in securities as they mature to maintain a desired portfolio size.
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Reinvestment into Agency Mortgage-Backed Securities (MBS): Excess principal payments from the Federal Reserve's holdings of agency debt and agency MBS will be reinvested into agency MBS, subject to a cap of $35 billion per month.
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Deviation Allowance for Reinvestments: Modest deviations from stated amounts for reinvestments are allowed if needed for operational reasons.
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Dollar Roll and Coupon Swap Transactions: The Federal Reserve will engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of agency MBS transactions.
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Primary Credit Rate Increase: The Board of Governors unanimously approved a 1/4 percentage point increase in the primary credit rate to 5.25 percent, effective May 4, 2023. This rate influences the discount window borrowing by depository institutions.
This information provides a detailed insight into the Federal Reserve's decisions and operational framework, showcasing a proactive approach to shaping monetary policy in response to economic conditions. For further updates and detailed information, individuals can refer to the Federal Reserve Bank of New York's website.
