One of the most notable developments following the last FOMC meeting was the Federal Reserve’s announcement that it would resume Reserve Management Purchases (RMPs). For those who follow the financial plumbing closely (Jill Cetina, Conks, Me and the Money Printer and Joseph Wang among others), this move was not surprising. Their commentary had already highlighted that, as reserves (deposits that banks hold at the Fed, see chart below) continued to decline, the Fed would eventually need to re-expand its balance sheet to maintain smooth money-market functioning.
In this note, I review the operation with a pedagogical aim: to clarify what RMPs are; why the Fed is bringing them back; and what the implications are for financial markets.
What are Reserve Management Purchases (RMPs)?
RMPs are regular purchases of Treasury bills, and, if needed, short-dated Treasury notes, executed to maintain an ample level of reserves in the banking system. In practice, they ensure that banks have enough reserves to allow for smooth transactions in money markets, and that short-term interest rates remain anchored. Importantly, the Fed describes these purchases as technical operations aimed at supporting money-market stability rather than altering the monetary policy stance.
On the balance sheet, an RMP is mechanically straightforward:
Fed buys T-bills → the Fed’s assets rise → bank reserves rise
In this narrow mechanical sense, the reserve-creation process is identical to Quantitative Easing (QE). The difference lies entirely in what the Fed buys, and why. (I flag here this excellent FT piece that provides additional details of these operations).1
As Chair Powell put it in his recent press conference:
“These operations are intended to support monetary policy implementation and smooth market functioning and should be used when economically sensible”.
Still, because RMPs expand the Fed’s balance sheet and involve outright purchases of government securities, they naturally invite the comparison to QE. This is a common comparison, which I will now address by diving into the similarities and differences between these two mechanisms.
Why RMPs look like QE
Here, I argue that there are three ways in which RMPs resemble QE.
First, as noted earlier, both RMP operations and QE cause the Fed to increase the size of its balance sheet: an increase to its assets (Treasury securities), matched by an increase in its liabilities (either reserves or ON RRP balances).
Second, from the private sector’s perspective, the transaction involves a familiar asset swap. When the Fed buys bills via primary dealers, the private sector gives up Treasuries and receives a Fed liability in return. If the effective seller is a bank (directly or via its dealer), the private sector receives reserves. If the seller is a money-market fund, the liquidity initially appears to be higher ON RRP balances. In either case, the private sector holds fewer Treasuries and more short-duration Fed liabilities in aggregate. This is the core balance-sheet resemblance to QE, even if the composition of those liabilities differs.
Third, these operations influence financial conditions. Even if not aimed at stimulating the real economy, RMPs ease funding pressures, stabilize repo markets, improve Treasury auction performance, and expand dealer balance-sheet capacity. These channels are not the macro-easing mechanisms of QE, but they work through financial conditions, making the comparison unavoidable.
Why RMPs Are Not QE
Despite these superficial similarities, RMPs differ from QE in both purpose and transmission:
QE removes duration; RMPs do not:
QE works by taking long-duration assets—10-year Treasuries, 30-year Treasuries, and agency mortgage-backed securities (MBS)—out of the private sector. Removing duration compresses the term premium, lowers long-term borrowing costs, and supports interest-sensitive sectors of the real economy.
RMPs, by contrast, operate only in Treasury bills and short-dated notes with maturities up to three years. They withdraw virtually no duration from the market. As a result, they do not influence mortgage rates, corporate bond yields, investment decisions, or the portfolio choices of long-horizon investors.
QE has a macroeconomic purpose; RMPs have an operational purpose:
QE is designed to ease financial conditions when growth or inflation undershoots the Fed’s objectives. It is a discretionary policy tool meant to influence aggregate demand.
RMPs have a far narrower aim: to ensure the smooth functioning of the monetary operating framework. They stabilize short-term rates such as SOFR, ease conditions in the repo market, support dealer balance sheet capacity, and maintain the mechanics of the floor system. These are plumbing functions, not channels of macroeconomic stimulus.
QE is an active policy choice; RMPs are part of the operating framework:
QE is deployed when policymakers judge that additional monetary accommodation is needed.
RMPs, by contrast, are routine instruments of the ample reserves regime. They are conducted to prevent reserves from becoming scarce and to keep the system in the stable, predictable region of the reserve demand curve. Their purpose is operational control, not macroeconomic easing.
Why QE Has Global Effects While RMPs Do Not
RMPs differ from QE not only in scope, but also in reach. Their effects are almost entirely domestic, whereas QE generates global spillovers.
Because RMPs operate exclusively in short-dated instruments such as Treasury bills (assets that do not sit at the core of global collateral chains), their impact is confined to easing U.S. funding pressures through higher reserves.
QE, by contrast, withdraws long-duration Treasuries and agency MBS from the market, as we’ve seen before. These securities anchor international dollar intermediation. Removing this high-quality collateral tightens global dollar funding conditions in a way that RMPs cannot.
In short, RMPs can stabilize domestic money markets without transmitting the broader global effects that typically accompany QE, as their international spillovers are far more limited.
Financial Market and Macro Implications
Let us now focus more on the consequences that RMPs have for financial markets; I’ll discuss five channels. There are several channels at play.
First, they improve repo-market stability:
By increasing the level of reserves in the banking system, RMPs provide a more reliable liquidity backdrop for secured funding markets. Higher reserve balances reduce the frequency and severity of liquidity shocks, and make SOFR more predictable, thus smoothing pressures that often arise around quarter-end dates.
Second, they expand dealer balance sheet capacity.
When the Fed buys bills, primary dealers receive reserves in return. Reserves carry minimal risk weights and are balance-sheet-friendly. This frees up capacity that dealers can use to:
Intermediate Treasury flows
Underwrite new issuance
This is particularly important in the current environment, where Treasury issuance is high, and stable market depth is essential.
Third, they support Treasury auctions and improve front-end liquidity, since the Fed acts as a predictable buyer of short-dated securities, implying narrower bill–OIS spreads, and facilitating short-term funding by the Treasury.
Fourth, they influence the yield curve in a distinct way.
Since RMPs operate exclusively at the very front end, they exert downward pressure on bill yields and short-dated coupons. This often causes the short-maturity Treasuries to become relatively more expensive, producing a possible steepening between the 6-month and medium horizons.
At the long end, the effect works through a different channel. Because RMPs do not remove duration from the market, while the Treasury is issuing substantial quantities of 10- to 30-year debt, the private sector must absorb more long-dated supply. All else equal, this can:
Lift term premia, and
Contribute to a steeper curve over time
Thus, RMPs influence the short end directly, while the long end remains primarily shaped by fiscal issuance, macro expectations, and investor risk appetite.
Fifth, RMPs stabilize the interaction between monetary and fiscal operations, smoothing the effects of fiscal cash flows, especially those associated with the Treasury General Account (TGA – for more details on the mechanisms behind the TGA see: Quantitative Tightening 101). Indeed, when the Treasury collects taxes:
Bank deposits fall,
Reserves decline one-for-one, and
The TGA rises
The April 15 tax date produces the single largest predictable drain on reserves each year. Without offsetting action, such swings can push reserves close to scarcity and threaten money-market stability, as happened in September 2019. By front-loading reserve additions ahead of these tax flows, RMPs absorb the impact of fiscal seasonality, ensuring that
The Treasury’s cash-management operations do not destabilize money markets,
Short-term interest rates remain well-controlled, and
The financial system continues to operate within the ample-reserves regime.
In this sense, RMPs smooth the interaction between fiscal operations and the Fed’s monetary framework.
Conclusion
RMPs are financial operations with limited direct effects on the real economy, and a primarily domestic reach. QE, by contrast, has broader macroeconomic and global implications. While RMPs may resemble QE because they expand reserves and involve outright purchases, their scope is narrower in nature: they are technical tools aimed at maintaining the smooth and efficient functioning of financial markets. Therefore, while similar at first glance, RMPs and QE function in two distinct realms with fundamentally different purposes, which call for a clear distinction between these two mechanisms.
There is, however, an additional nuance highlighted in the recent FT analysis: although the Fed conducts all purchases through primary dealers, the ultimate seller (if money-market funds or banks, for example) of the securities matters for how liquidity flows through the system. When the dealer is selling securities, it holds onto them on behalf of a bank; reserves increase directly because the transaction settles on the bank’s balance sheet. When the dealer sources bills from a money-market fund (MMF), the proceeds may initially appear as an increase in the MMF’s balance at the Fed’s ON RRP (Overnight Reverse Repurchase Agreements) facility, not as reserves. Only as MMFs reallocate their portfolios—often by lending into the repo market—do the liquidity effects migrate into the banking system and raise reserves. Thus, although RMPs always increase the Fed’s total liabilities, the composition of those liabilities (reserves versus ON RRP balances) depends on who the effective seller is. This distinction influences how quickly the new liquidity feeds into repo markets, dealer balance sheets, and, ultimately, the broader financial plumbing. It does not change the purpose of RMPs, but it helps explain why their effects on market conditions can unfold differently depending on the mix of counterparties involved.
This type of post is why I love Substack!
I enjoyed reading about RMPs and your views on how it resembles QE. So many ways to do the same thing - boost money supply.