Annual Report on Open Market Operations

This report reviews the conduct of open market operations and other developments that influenced the Federal Reserve’s System Open Market Account (SOMA) in 2023. The report provides an overview of the Federal Reserve’s monetary policy implementation framework, describes operations conducted at the direction of the Federal Open Market Committee (FOMC), and reviews balance sheet developments. As in prior years, the report includes illustrative projections of SOMA domestic securities holdings, reserve balances, and associated net income.

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The Federal Open Market Committee continued the process of reducing the size of the Federal Reserve's balance sheet during 2023. Below, we walk you through what drove the decline in assets, as well as the shifts on the liability side
of the balance sheet.

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Runoff of the SOMA Securities Portfolio

Note: Figures are weekly and include unsettled holdings. Agency CMBS are included in the agency MBS amount.
Source: Board of Governors of the Federal Reserve System

In line with the FOMC’s directives, SOMA holdings of Treasuries and agency MBS decreased by $924 billion during 2023. The runoff of SOMA securities, which make up 94 percent of Federal Reserve assets, drove the overall decrease in the balance sheet.

Treasury and agency MBS runoff continued to be guided by redemption caps set by the FOMC of $60 billion and $35 billion per month, respectively. Zooming in on Treasury securities (in light blue) shows that holdings declined from $5.5 trillion to $4.8 trillion, with redemptions of Treasury coupon and bill securities contributing to about 77 percent of total SOMA runoff in 2023.

Zooming in further, agency MBS holdings (in bright blue) fell from $2.6 trillion to $2.4 trillion, or about 23 percent of total SOMA runoff during the year. Principal payments averaged $17.5 billion per month in 2023, well below the monthly redemption cap of $35 billion.

Shifts in Federal Reserve Liabilities

Note: Figures are weekly. Other liabilities include deposits from international and multilateral organizations, government-sponsored entities, designated financial market utilities, and other non-reserve liabilities.
Source: Board of Governors of the Federal Reserve System

Total liabilities and capital decreased by about $734 billion to reach $7.84 trillion by the end of 2023. The composition of liabilities shifted, driven by a substantial decrease in the ON RRP facility take-up (in dark green) and an increase in the TGA (in bright blue). Reserve balances (in gray) increased modestly over the year.

Zooming in, from 2022 through the first half of 2023, usage of the ON RRP (in dark green) remained elevated, as rates at the facility remained attractive compared to other short-term money market investments.

During the second half of 2023, this dynamic shifted as a range of rates on short-term money market investments began to trade above the ON RRP rate. Users of the ON RRP responded by reallocating out of the facility, leading to a significant decline in the ON RRP in the latter part of 2023.

By the end of 2023, the total decline in the ON RRP offset the effects on reserves from both SOMA securities runoff and the increase in the TGA (in bright blue). As a result, reserve balances (in gray) increased during 2023 and made up a larger proportion of Federal Reserve liabilities compared to 2022.

Download the 2023 Report | Data for charts

Prepared for the Federal Open Market Committee (FOMC) by the
Markets Group of the Federal Reserve Bank of New York
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