Federal Reserve — FOMC Statement (USA, 2025)

FOMC Minutes of the Federal Open Market Committee October 28 29, 2025 F E D E R A L R E S E R V E S Y S T E M Minutes of the Federal Open Market Committee October 28 29, 2025 A joint meeting of the Federal Open Market Committee and the Board of Governors of the Federal Reserve System was held in the offices of the Board of Governors on Tuesday, October 28, 2025, at 9:00 a.m. and continued on Wednesday, October 29, 2025, at 9:00 a.m.1 Developments in Financial Markets and Open Market Operations The manager turned first to an overview of broad market developments during the intermeeting period. Market participants left their macroeconomic outlooks little changed, and they appeared to continue to interpret data made available over the period as consistent with a resilient economy. In line with the stable outlook, investors  expectations for the path of the policy rate, whether market based or survey based, were virtually unchanged over the period. Investors expected a 25 basis point lowering in the target range for the federal funds rate at the October meeting and another 25 basis point lowering at the December meeting, although some uncertainty around the December meeting was evident in responses to the Open Market Desk s Survey of Market Expectations (Desk survey) as well as in market prices. The manager turned next to developments in Treasury markets and market-based measures of inflation compensation. Treasury yields were little changed, on net, over the period, consistent with stable expectations for the policy rate. Inflation compensation moved lower over the period, particularly for shorter tenors, with staff models attributing these recent movements to temporary factors. Broad equity indexes continued to rise over the period, with the largest technology companies performing strongly on market participants  optimism about artificial intelligence (AI). The manager noted that rising stock prices were consistent with expectations for continued robust growth in earnings. Corporate bond spreads increased a bit this period but remained low in absolute terms. A couple of well-publicized bankruptcies, as well as some credit losses reported by some banks, led to 1 The Federal Open Market Committee is referenced as the  FOMC  and the  Committee  in these minutes; the Board of Governors of the Federal Reserve System is referenced as the  Board  in these minutes. 2 October 28-29, 2025 increased investor scrutiny of credit markets, with investors reportedly closely tracking the riskiest segments of credit markets for signs of weakening and noting the possibility of future losses. Regarding international developments, the manager noted that the trade-weighted dollar index rose somewhat over the period. Despite its recent appreciation, the dollar remained weaker against all major currencies since the beginning of the year, and outside forecasters continued to expect that the dollar would depreciate modestly over the medium term. The manager highlighted that recent changes in money market conditions indicated that the level of reserves could be approaching ample. Rates on Treasury repurchase agreements (repo) moved notably higher relative to the interest rate on reserve balances (IORB). Investors attributed this movement to a decline in available liquidity amid ongoing balance sheet runoff and continued large Treasury debt issuance. Higher repo rates induced a fairly rapid increase in the effective federal funds rate (EFFR) relative to the IORB, with signs that the EFFR might increase further. The manager noted this increase was widespread, with many participants paying higher rates in the federal funds market regardless of their reasons for borrowing. Consistent with the move higher in repo rates, the overnight reverse repurchase agreement (ON RRP) facility had seen usage fall to de minimis levels. Meanwhile, the standing repo facility (SRF) was used more frequently over the period, albeit not in large volumes. Pressures in money markets resulted in notable movements in some other indicators of reserve ampleness. For example, payments by banks shifted to later in the day, suggesting that banks may have been economizing on reserves. In addition, the share of domestic banks borrowing in the federal funds market increased. The estimated elasticity of the EFFR with respect to changes in the supply of reserves was stable during the period. That outcome, however, was likely due to the aftereffects of the debt ceiling resolution, which likely affected the estimated elasticity. A related concept, the elasticity of repo rates to changes in repo volumes, increased significantly since late August. The manager recommended that the Committee consider stopping the runoff of the System Open Market Account (SOMA) portfolio soon. Continuing runoff would imply that volatility in money markets likely would continue to intensify. He noted that excessive money market rate volatility would pose risks to both the control of the policy rate and the stability of funding in the repo market, which in turn could affect the stability of the U.S. Treasury market. The manager also noted that further reductions in the size of the portfolio may prove short lived because they would bring forward the time when the Desk would need to restart purchases of securities to maintain ample reserves. The manager next discussed the expected trajectory of the balance sheet. Respondents to the Desk survey had come to expect an earlier date for the end of portfolio runoff. Market outreach suggested further revisions to expectations in the week after the survey concluded, and the staff estimated that if Minutes of the Federal Open Market Committee 3 respondents had been asked more recently, almost half would have said they expected the Committee to announce an end to runoff at this meeting. In the absence of material take-up at the ON RRP facility, and assuming balance sheet runoff would end, the staff estimated that reserves would continue to gradually decline amid projected increases in other Federal Reserve liabilities. At times, such as during quarter- and year-ends and tax dates, reserves were projected to dip to quite low levels. Against this backdrop, the staff would continue to monitor indicators of reserve conditions closely. The manager noted that the Desk would begin using a new trading platform in the near future to conduct its repo and reverse repo operations, with other operations to follow in coming quarters. In addition, he informed the Committee that there were no intervention operations in foreign currencies for the SOMA during the intermeeting period. By unanimous vote, the Committee ratified the Desk s domestic transactions over the intermeeting period. Special Topic: The Standing Repo Facility The staff provided background on the SRF, including potential benefits and costs of central clearing for SRF transactions. The main potential benefit mentioned was greater effectiveness of the SRF in helping to maintain control of the federal funds rate. Central clearing could increase counterparties  willingness to use the SRF when there is upward pressure on repo rates, which would damp pressures on the federal funds rate. The main potential costs mentioned were increased systemic importance of providers of central clearing, the potential for central clearing of the SRF to enable greater nonbank leverage in the Treasury market, and the expansion of the Federal Reserve s footprint in financial markets. Most participants commented on the potential for central clearing of SRF transactions.2 Among those who commented, almost all noted that the SRF supports the effective implementation and transmission of monetary policy as well as smooth market functioning, and that central clearing of SRF transactions could improve the effectiveness of the facility. A few participants raised concerns about risks associated with centrally clearing the SRF, including increased systemic importance of providers of central clearing. Participants who commented generally supported further study of central clearing of SRF transactions. 2 The discussion summarized here draws from remarks made by participants during various portions of the meeting, as the agenda did not include a separate policymaker discussion about the SRF. 4 October 28-29, 2025 Special Topic: Balance Sheet Issues The FOMC s  Plans for Reducing the Size of the Federal Reserve s Balance Sheet,  announced in May 2022, indicated that the Committee intended to cease balance sheet runoff when reserve balances are judged to be somewhat above a level consistent with ample reserves. Since then, the size of the Federal Reserve s balance sheet had declined substantially. In addition, money market conditions had tightened recently, which suggested that reserve balances may be moving closer to ample. In light of these developments, participants discussed whether to stop balance sheet runoff soon and what the maturity composition of the SOMA Treasury portfolio (SOMA portfolio) should be in the longer run. Views on the latter would guide the investment of principal payments received on the Federal Reserve s holdings of agency securities as well as the composition of securities to be purchased once reserve management purchases would be needed. Consequently, participants agreed that their discussions at this meeting would help inform the Committee s future decisions regarding the long-run composition of the SOMA portfolio. The participants  discussion was preceded by a staff presentation. The staff reviewed the composition of the SOMA portfolio and provided some considerations regarding the SOMA portfolio s long-run composition,