Board of Governors of the Federal Reserve System

Figure 1. The balance-sheet trilemma visualized

A simple triangle diagram illustrates a policy trade-off. At the top vertex, a label reads “Small balance sheet.” The bottom left vertex is labeled “Low volatility of short-term rates,” and the bottom right vertex is labeled “Limited market intervention.” The triangle visually suggests that all three goals cannot be achieved simultaneously.

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Figure 2. Reserve demand and money market rate volatility

A stylized line chart plots money market rates against the level of reserves. The x-axis is labeled “Reserves,” and the y-axis is labeled “Money market rates.” A dark line slopes downward and flattens as reserves increase, indicating higher rates at low reserves and rates approaching a floor at high reserves, asymptote at a horizontal line labelled ON-RRP. A second horizontal line is at a higher level labeled “IORB”. Two blue two-way arrows, centered at “higher” and “lower” reserve levels, highlight “Regular variation in reserves” and are bordered by dotted vertical lines. Two semi-transparent orange bands trace the range in money market rates corresponding to the changes in reserves along the solid blue curve. The range in money market rates from an equal sized region of reserves is wider at lower reserve levels, with the orange band corresponding to higher reserves being labelled “low volatility”, and the orange band corresponding to lower reserves labelled “high volatility”.

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Figure 3. Repo rate sensitivity and volatility vs. normalized reserves

Two side-by-side scatterplots show how the Treasury General Collateral Repo (TGCR) spread behaves at different reserve levels. In both panels, the x-axis is “Reserves / Outstanding Treasuries (percent),” ranging roughly from 12 to 28 percent. The left panel plots the 90-day rolling regression coefficient of TGCR on the TGA; points are large and positive on the y-axis when reserves are below about 15 percent, in the range of 0.25 basis points, then cluster near zero at higher reserve ratios. The right panel plots the standard deviation of the TGCR spread in basis points; volatility is high and dispersed at low reserve ratios, rising as high as 200 bp, and falls toward near-zero values as reserves rise above roughly 17 percent.

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Figure 4. Fed funds spread volatility and reserves

A time-series line chart from 2000 to 2025 has two y-axes. The left y-axis, in percentage points, shows the 90-day rolling volatility of the fed funds–TGCR spread as a dark solid line; it is elevated and spiky, ranging between 0.05 and 0.35 before the global financial crisis, spikes sharply again to roughly 0.45 around 2008–2009, and is generally low but with occasional small bumps thereafter, staying almost entirely below 0.05. The right y-axis, in trillions of dollars, shows total reserves as a green dashed line; reserves are near zero before 2008, jump sharply during the crisis, gradually rise and plateau in the 2010s, dip around 2018–2019, then surge again during the pandemic to above 3 trillion dollars before easing slightly. Periods of very low volatility coincide with times when reserves are large.

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