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How the Fed’s Overnight Reverse Repo Facility Works

Daily take-up at the overnight reverse repo (ON RRP) facility increased from less than $1 billion in early March 2021 to just under $2 trillion on December 31, 2021. In the second post in this series, we take a closer look at this important tool in the…

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Daily take-up at the overnight reverse repo (ON RRP) facility increased from less than $1 billion in early March 2021 to just under $2 trillion on December 31, 2021. In the second post in this series, we take a closer look at this important tool in the Federal Reserve’s monetary policy implementation framework and discuss the factors behind the recent increase in volume.

In yesterday’s post, we presented a stylized view of the Fed’s implementation framework for monetary policy, in which (i) the Federal Open Market Committee (FOMC) communicates the stance of monetary policy through a target range for the federal funds rate, (ii) interest on reserve balances (IORB) is a key tool, and (iii) an ample supply of reserves ensures that the interest rate paid on banks’ reserve balances maintains the effective federal funds rate (EFFR) within the target range. However, in the United States, banks are only a part of the money market ecosystem—nonbank financial institutions make up a significant share of lending activity.

As a result, the FOMC employs another tool called the ON RRP facility, which is available to a wide range of money market lenders. This facility is particularly important for monetary policy implementation in periods when reserves are elevated. As reserves grow, banks’ willingness to take on additional reserves diminishes, and they reduce the rates they pay for deposits and other funding. In this environment, market rates trade below the IORB rate because nonbank lenders are willing to lend at such rates. For example, the Federal Home Loan Banks (FHLBs), which are important lenders in the fed funds market and not eligible to earn IORB, are willing to lend at rates below the IORB rate rather than leave funds unremunerated in their accounts at the Fed. To provide a floor under the fed funds rate, the FOMC introduced the ON RRP facility.

What’s the ON RRP Rate and How Does It Work?

In concept, the ON RRP facility acts like IORB for a set of nonbank money market participants. Through the ON RRP facility, eligible institutions—money market funds, government-sponsored enterprises, primary dealers, and banks—can invest overnight with the Fed through a repurchase agreement (repo).

By setting the ON RRP rate, the FOMC establishes a floor on the rates at which these institutions are willing to lend to other counterparties. The floor improves these institutions’ ability to negotiate rates on private investments above the ON RRP rate and provides an alternative investment when more attractive rates are not available. 

When Is the ON RRP Facility Used?

In periods when the EFFR is close to or above the IORB rate, we would not expect the ON RRP facility to see much take-up as money market participants have access to alternative investments at more favorable rates. This can be seen in the charts below. The first chart shows that as reserves steadily declined during the monetary policy normalization process, in 2018 and 2019, the EFFR increased relative to the IORB rate. The second chart shows that as the EFFR-IORB spread increased, take-up at the ON RRP facility decreased and was almost always very small, until the pandemic.  

The Spread between the EFFR and the IORB Rate Tends to Decrease when Reserves Increase

Chart: The Spread between the EFFR and the IORB Rate Tends to Decrease when Reserves Increase

Sources: Federal Reserve Economic Data (FRED); authors’ calculations.
Notes: IORB is interest on reserve balances. EFFR is effective federal funds rate. Month-end observations are dropped.

Take-up at the ON RRP Tends to Be Larger when the Spread between the EFFR and the IORB Is More Negative

Chart: Take-up at the ON RRP Tends to Be Larger when the Spread between the EFFR and the IORB Is More Negative

Sources: Federal Reserve Economic Data (FRED); authors’ calculations.
Notes: ON RRP volume is the total value for overnight reverse repurchase agreements from September 23, 2013 to December 16, 2015, and the total value for overnight reverse repurchase agreements under the ON RRP facility from December 17, 2015 onward. EFFR is effective federal funds rate. Month-end observations are dropped.

In contrast, when reserves are plentiful and the EFFR moves closer to the bottom of the fed funds target range, the rate offered at the ON RRP facility becomes more attractive relative to alternative investments and we would expect to see an increase in take-up at the ON RRP facility. (The available supply of safe investments like Treasury bills can also influence the EFFR, as suggested in this Liberty Street Economics post.) At such times, the ON RRP facility is particularly important for the control of the EFFR. This is indeed what happened from 2013 through 2017, and in 2021 as well. As reserves have reached unprecedented levels over the last year, so has take-up at the facility.

Is the ON RRP Facility Too Large?

An ON RRP transaction—which is economically similar to a secured loan—does not change the size of the Fed’s balance sheet but does shift the composition of the Fed’s liabilities. For instance, when a money market fund reduces overnight deposits with a bank and directs those funds to the ON RRP facility, the increase in the ON RRP facility decreases reserve balances held by banks at the Fed. The ON RRP facility, thus, allows the Fed’s liabilities to be more broadly distributed among money market participants.

This broader distribution of Fed liabilities is particularly useful in environments where the FOMC uses asset purchases to stimulate the economy, and reserves rise as a result. Since reserves can only be held by banks, substantial growth in reserves can put pressure on bank balance sheets. Therefore, when the ON RRP facility grows it reduces these pressures by offering liabilities that can be held by a broader set of financial market participants, supporting the FOMC’s efforts to stimulate the economy through asset purchases.

The next chart shows that an increase in take-up at the ON RRP facility moderates the growth in reserve balances. Hence, when ON RRP take-up is high, as it is today, the supply of reserves is lower than it would be absent the ON RRP facility, and banks’ balance sheets are less impacted.

ON RRP Take-up Reduces the Supply of Reserves, Everything Else Equal


Sources: Federal Reserve Board (H.4.1 – Factors Affecting Reserve Balances); authors’ calculations.

How Effectively Does the ON RRP Facility Control Rates?

The Fed began testing ON RRPs in September 2013 and then transitioned the ON RRP facility to an implementation tool around the “lift-off” of interest rates in December 2015. Since that time, the EFFR has only printed below the target range once, at the end of 2015.

As shown in the next chart, the ON RRP facility has been very effective at providing a floor under the EFFR even as aggregate reserves have continued to grow in 2021, rising above the unprecedented level of $4 trillion in July.

ON RRP Facility Has Been an Effective Floor under the EFFR

Chart: ON RRP Facility Has Been an Effective Floor under the EFFR

Sources: Bloomberg L.P.; Federal Reserve Economic Data (FRED); authors’ calculations:
Notes: EFFR is effective federal funds rate. IORB is interest on reserve balances. ON RRP rate is the rate for overnight reverse repurchase agreements from September 23, 2013 to December 16, 2015, and the rate for overnight reverse repurchase agreements under the ON RRP facility from December 17, 2015 onward. Shaded area represents the Federal Open Market Committee’s target range for the federal funds rate. Month-end observations are dropped.

To Sum Up

To circle back to the beginning of the post, in the recent environment of abundant reserves, the ON RRP facility is working as expected. It is providing a floor under the fed funds rate and moderating the growth in reserve balances as the Fed continues to provide support to the U.S. economy.

Gara Afonso is an assistant vice president in the Federal Reserve Bank of New York’s Research and Statistics Group.

Lorie Logan

Lorie Logan is an executive vice present in the Bank’s Markets Group and manager of the System Open Market Account for the Federal Open Market Committee.

Antoine Martin is a senior vice president in the Bank’s Research and Statistics Group.

William Riordan is an assistant vice president in the Bank’s Markets Group.

Patricia Zobel is a vice president in the Federal Reserve Bank of New York’s Markets Group and deputy manager of the System Open Market Account for the Federal Open Market Committee.

How to cite this post:
Gara Afonso, Lorie Logan, Antoine Martin, William Riordan, and Patricia Zobel, “How the Fed’s Overnight Reverse Repo Facility Works,” Federal Reserve Bank of New York Liberty Street Economics, January 11, 2022, https://libertystreeteconomics.newyorkfed.org/2022/1/how-the-feds-overnight-reverse-repo-facility-works/.


Disclaimer
The views expressed in this post are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the authors.

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Type-I interferon stops immune system ‘going rogue’ during viral infections

Hamilton, ON (May 17, 2022) – McMaster University researchers have found not only how some viral infections cause severe tissue damage, but also how…

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Hamilton, ON (May 17, 2022) – McMaster University researchers have found not only how some viral infections cause severe tissue damage, but also how to reduce that damage.

Credit: Georgia Kirkos/McMaster University

Hamilton, ON (May 17, 2022) – McMaster University researchers have found not only how some viral infections cause severe tissue damage, but also how to reduce that damage.

 

They have discovered how Type I interferon (IFN) stops the immune system ‘going rogue’ and attacking the body’s own tissues when fighting viral infections, including COVID-19.

 

Their paper was published in the journal PLOS Pathogens today.

  

Senior author Ali Ashkar said IFN is a well-known anti-viral signalling molecule released by the body’s cells that can trigger a powerful immune response against harmful viruses.

 

“What we have found is that it is also critical to stop white blood cells from releasing protease enzymes, which can damage organ tissue. It has this unique dual function to kick start an immune response against a viral infection on the one hand, as well as restrain that same response to prevent significant bystander tissue damage on the other,” he said.

 

The research team investigated IFN’s ability to regulate a potentially dangerous immune response by testing it on both flu and the HSV-2 virus, a highly prevalent sexually transmitted pathogen, using mice. Data from COVID-19 patients in Germany, including post-mortem lung samples, was also used in the study.

 

“For many viral infections, it is not actually the virus that causes most of the tissue damage, it is our heightened immune activation towards the virus,” said Ashkar, a professor of medicine at McMaster.

  

First co-author of the study and PhD student Emily Feng said: “Our body’s immune response is trying to fight off the virus infection, but there’s a risk of damaging innocent healthy tissue in the process. IFNs regulates the immune response to only target tissues that are infected.

 

“By discovering the mechanisms the immune system uses that can inadvertently cause tissue damage, we can intervene during infection to prevent this damage and not necessarily have to wait until vaccines are developed to develop life-saving treatments,” she added.

 

“This applies not just to COVID-19, but also other highly infectious viruses such as flu and Ebola, which can cause tremendous and often life-threatening damage to the body’s organs,” said first study co-author Amanda Lee, a family medicine resident. 

 

Ashkar said the release of harmful proteases is the result of a ‘cytokine storm’, which is life-threatening inflammation sometimes triggered by viral infections. It has been a common cause of death in patients with COVID-19, but treatment has been developed to prevent and suppress the cytokine storm.

 

Ashkar said that steroids like dexamethasone are already used to rein in an extreme immune response to viral infections. The authors used doxycycline in their study, an antibiotic used for bacterial infections and as an anti-inflammatory agent, inhibits the function of proteases causing the bystander tissue damage.

 

Lee added: “This has the potential in the future to be used to alleviate virus-induced life-threatening inflammation and warrants further research.” 

 

The study was funded by the Canadian Institutes of Health Research.

 

-30-

 

Editors:

Pictures of Ali Ashkar and Emily Feng may be found at https://bit.ly/3wmSw0D

  

 

 


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mRNA vaccines like Pfizer and Moderna fare better against COVID-19 variants of concern

A comparison of four COVID-19 vaccinations shows that messenger RNA (mRNA) vaccines — Pfizer-BioNTech and Moderna — perform better against the World…

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A comparison of four COVID-19 vaccinations shows that messenger RNA (mRNA) vaccines — Pfizer-BioNTech and Moderna — perform better against the World Health Organization’s variants of concern (VOCs) than viral vector vaccines — AstraZeneca and J&J/Janssen. Although they all effectively prevent severe disease by VOCs, the research, publishing May 17th in the open access journal PLOS Medicine, suggests that people receiving a viral vector vaccine are more vulnerable to infection by new variants.

Credit: Carlos Reusser Monsalvez, Flickr (CC0, https://creativecommons.org/publicdomain/zero/1.0/)

A comparison of four COVID-19 vaccinations shows that messenger RNA (mRNA) vaccines — Pfizer-BioNTech and Moderna — perform better against the World Health Organization’s variants of concern (VOCs) than viral vector vaccines — AstraZeneca and J&J/Janssen. Although they all effectively prevent severe disease by VOCs, the research, publishing May 17th in the open access journal PLOS Medicine, suggests that people receiving a viral vector vaccine are more vulnerable to infection by new variants.

By March 2022, COVID-19 had caused over 450 million confirmed infections and six million reported deaths. The first vaccines approved in the US and Europe that protect against serious infection are Pfizer-BioNTech and Moderna, which deliver genetic code, known as mRNA, to the bodies’ cells, whereas Oxford/AstraZeneca and J&J/Janssen are viral vector vaccines that use a modified version of a different virus — a vector — to deliver instructions to our cells. Three vaccines are delivered as two separate injections a few weeks apart, and J&J/Janssen as a single dose.

Marit J. van Gils at the University of Amsterdam, Netherlands, and colleagues, took blood samples from 165 healthcare workers, three and four weeks after first and second vaccination respectively, and for J&J/Janssen at four to five and eight weeks after vaccination. Samples were collected before, and four weeks after a Pfizer-BioNTech booster.

Four weeks after the initial two doses, antibody responses to the original SARS-CoV-2 viral strain were highest in recipients of Moderna, followed closely by Pfizer-BioNTech, and were substantially lower in those who received viral vector vaccines. Tested against the VOCs – Alpha, Beta, Gamma, Delta and Omicron – neutralizing antibodies were higher in the mRNA vaccine recipients compared to those who had viral vector vaccines. The ability to neutralize VOCs was reduced in all vaccine groups, with the greatest reduction against Omicron. The Pfizer-BioNTech booster increased antibody responses in all groups with substantial improvement against VOCs, including Omicron.

The researchers caution that their AstraZeneca group was significantly older, because of safety concerns for the vaccine in younger age groups. As immune responses tend to weaken with age, this could affect the results. This group was also smaller because the Dutch government halted use for a period.

van Gils concludes, “Four COVID-19 vaccines induce substantially different antibody responses.”

#####

In your coverage, please use this URL to provide access to the freely available paper in PLOS Medicine:

http://journals.plos.org/plosmedicine/article?id=10.1371/journal.pmed.1003991

Citation: van Gils MJ, Lavell A, van der Straten K, Appelman B, Bontjer I, Poniman M, et al. (2022) Antibody responses against SARS-CoV-2 variants induced by four different SARS-CoV-2 vaccines in health care workers in the Netherlands: A prospective cohort study. PLoS Med 19(5): e1003991. https://doi.org/10.1371/journal.pmed.1003991

 

Author Countries: The Netherlands, United States

 

Funding: This work was supported by the Netherlands Organization for Scientific Research (NWO) ZonMw (Vici grant no. 91818627 to R.W.S., S3 study, grant agreement no. 10430022010023 to M.K.B.; RECoVERED, grant agreement no. 10150062010002 to M.D.d.J.), by the Bill & Melinda Gates Foundation (grant no. INV002022 and INV008818 to R.W.S. and INV-024617 to M.J.v.G.), by Amsterdam UMC through the AMC Fellowship (to M.J.v.G.) and the Corona Research Fund (to M.K.B.), and by the European Union’s Horizon 2020 program (RECoVER, grant no. 101003589 to M.D.d.J). The funders had no role in study design, data collection and analysis, decision to publish, or preparation of the manuscript.


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Pfizer Jab In Young People Only 20% Effective After 60 Days, 0% After 5 Months

Pfizer Jab In Young People Only 20% Effective After 60 Days, 0% After 5 Months

Authored by Zachary Stieber via The Epoch Times,

The Pfizer…

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Pfizer Jab In Young People Only 20% Effective After 60 Days, 0% After 5 Months

Authored by Zachary Stieber via The Epoch Times,

The Pfizer COVID-19 vaccine turned negatively effective after five months, according to a new study.

A health care worker fills a syringe with Pfizer's COVID-19 vaccine in a file image. (Robyn Beck/AFP via Getty Images)

Researchers with the U.S. Centers for Disease Control and Prevention (CDC) analyzed test results from sites across the United States and determined that the vaccine was 60 percent effective two to four weeks after 12- to 15-year-olds got the second of the two-dose primary regimen.

But the effectiveness, measured against symptomatic illness, quickly plummeted, hitting 20 percent around month two and zero around month five.

After that, recipients in the age group were more likely to be infected by COVID-19.

Vaccine effectiveness “was no longer significantly different from 0 during month 3 after the second dose,” the researchers wrote in the study, which was published by the Journal of the American Medical Association.

Pfizer, its partner BioNTech, and the CDC didn’t respond to requests for comment.

The analyzed tests were performed between Dec. 26, 2021, and Feb. 21, 2022. Some 47,700 tests among 12- to 15-year-olds were included, with about half being unvaccinated. The testing data was on the Increasing Community Access to Testing, a program funded by the U.S. Department of Health and Human Services that contracts with pharmacy chains to perform drive-through testing. The testing data was supplemented by information in questionnaires filled out by adults with the adolescents.

Limitations of the study included vaccination being self-reported.

The study was funded by the U.S. government.

The study also found that vaccine effectiveness against symptomatic infection plunged quickly for those 5 to 11 years old, starting at 60 percent but hitting 23 percent just one month later.

One way to combat the negative effectiveness, researchers said, was to get a booster dose.

Of the 906 12- to 15-year-olds who got a third, or booster, dose, the effectiveness was measured at 71 percent two to six weeks after receipt.

Other studies, though, show that the protection from a booster, like that from the primary regimen, quickly wanes.

“Given the well-established pattern of waning mRNA VE after 2 doses and early evidence of waning of booster dose protection in adults, monitoring the duration of protection from booster doses in adolescents will be important,” researchers said.

Both the Pfizer and Moderna vaccines are built on messenger RNA (mRNA) technology. VE refers to vaccine effectiveness.

In another study published by the same journal on May 13, New York researchers reported the gap of infection and hospitalization risk between unvaccinated and vaccinated youth narrowing over time, with vaccinated 5- to 11-year-olds being infected at a rate of 62 per 100,000 and unvaccinated being infected at a rate of 70 per 100,000.

That was an incidence rate ratio of 1.1; the rate ratio for 12- to 17-year-olds was 2.

The protection also waned considerably against hospitalization over time, researchers found.

They said that the findings support “efforts to increase vaccination coverage in children and adolescents.

Tyler Durden Tue, 05/17/2022 - 13:36

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