The Liberty Street Economics blog, published by the Federal Reserve Bank of New York, posted a new piece, "From Policy Rates to Market Rates—Untangling the U.S. Dollar Funding Market." It asks, "How do changes in the rate that the Federal Reserve pays on reserves held by depository institutions affect rates in money markets in which the Fed does not participate? Through which channels do changes in the so-called administered rates reach rates in onshore and offshore U.S. dollar money markets? In this post, we answer these questions with the help of an interactive map that guides us through the web of interconnected relationships between the Fed, key market players, and the various instruments in the U.S. dollar funding market, highlighting the linkages across the short-term financial products that form this market." They explain, "In today's monetary policy framework of ample reserves, the Fed sets two rates to steer short-term interest rates in accordance with its policy target, the fed funds target range: the interest rate paid on reserves that depository institutions hold overnight at the Federal Reserve (IOR), and the rate offered to a wide range of lenders at the overnight reverse repurchase agreement facility (ON RRP). IOR is the primary tool used to influence overnight rates in the banking system, while ON RRP acts as a supplement to IOR. As discussed in the recently published report Open Market Operations during 2018, these two 'administered' rates have proven effective at ensuring interest rate control, namely by maintaining the effective federal funds rate (EFFR) within the Federal Open Market Committee's (FOMC) target range and by steering short-term interest rates so that the stance of policy is transmitted into broader financial markets." Finally, the blog adds, "And so to answer our original question, changes in administered rates reach markets where the Fed does not intervene through the web of interconnected relationships between both onshore and offshore participants and through a host of short-term financial products. These interlinkages and connections are the basis for the efficient pass-through of monetary policy."

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