[VT | Philadelphia | Sept. 17, 2025] Following its decision on September 17, 2025, to lower the target range for the federal funds rate to 4%–4.25%, the Federal Reserve issued an implementation note detailing the operational measures that will support its monetary policy stance.
The Board of Governors of the Federal Reserve System voted to lower the interest rate paid on reserve balances to 4.15%, effective September 18. In a related action, the primary credit rate was decreased by a quarter percentage point to 4.25%, effective the same day. The rate reduction was approved by all 12 regional Federal Reserve Banks, including Boston, New York, Philadelphia, Richmond, Atlanta, Chicago, Minneapolis, Kansas City, Dallas, and San Francisco.
The Federal Open Market Committee (FOMC) also outlined instructions for the Open Market Desk at the Federal Reserve Bank of New York to implement the policy through various operational tools:
- Open Market Operations: The Desk will undertake transactions as needed to maintain the federal funds rate in the 4%–4.25% target range.
- Standing Overnight Repurchase Agreements (Repo): Conducted with a minimum bid rate of 4.25% and an aggregate operation limit of $500 billion.
- Standing Overnight Reverse Repurchase Agreements (Reverse Repo): Conducted at an offering rate of 4% with a per-counterparty limit of $160 billion per day.
- Treasury Securities Management: Principal payments from maturing Treasury securities exceeding $5 billion per month will be rolled over at auction. Treasury coupon securities will be redeemed up to this monthly cap, while Treasury bills will be redeemed to the extent that principal payments are below the cap.
- Agency Debt and Mortgage-Backed Securities (MBS): Principal payments exceeding $35 billion per month will be reinvested into Treasury securities to roughly match the maturity composition of Treasury securities outstanding. Modest deviations are allowed for operational reasons.
The note emphasized that these measures are part of the Fed’s broader effort to maintain the federal funds rate within the new target range while continuing to support maximum employment and price stability.
