Board of Governors of the Federal Reserve System
06/22/2026 | Press release | Distributed by Public on 06/22/2026 11:33
Beyond Reserves: The Federal Reserve's Balance Sheet and the Repo Market
June 2026
Beyond Reserves: The Federal Reserve's Balance Sheet and the Repo Market
Sriya Anbil, Alyssa Anderson, Ethan Cohen, and Romina Ruprecht
Abstract:
We present a new constraint on the size of the Fed's balance sheet: repo market capacity. Calibrating a structural model to the recent monetary tightening cycle, we show that repo market capacity-driven by money market fund liquidity supply-is the binding constraint on the Fed's balance sheet, not bank reserve demand, which was highlighted in the events of September 2019. We also demonstrate a novel complementarity between interest rate and balance sheet policies: higher policy rates expand repo capacity, allowing the central bank to operate with a smaller balance sheet.
Keywords: Monetary policy implementation, quantitative tightening, reserves, overnight reverse repo facility, shadow banks
DOI: https://doi.org/10.17016/FEDS.2026.041
PDF: Full Paper
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