On a Wednesday in June 2023, the Federal Reserve’s Overnight Reverse Repo (ON RRP) facility held $1.992 trillion. By the first week of November 2024, that number had cratered to roughly $155 billion—a 92% drop in 17 months. If you own a government money market fund, your yield didn’t fall 92%. But the way that cash drained out is already changing the 7-day SEC yield you check every Monday morning. This isn’t a forecast. It’s a look at the plumbing, the lags, and the specific basis-point moves that matter to a retail saver.
The Facility That Parked $2.5 Trillion
The Fed’s ON RRP facility is a place where money market funds, government-sponsored enterprises, and a few other players lend cash to the Federal Reserve overnight, taking Treasury collateral in return and earning the ON RRP rate. At its peak on December 30, 2022, the facility held $2,553 billion. That single overnight parking lot was bigger than Italy’s entire GDP. By late 2024, the rate paid on those balances was 4.30%, set 5 basis points below the lower bound of the federal funds rate range.
Money market funds (MMFs) piled into the facility because it gave them a clean, risk-free, overnight yield that often beat very short-term Treasury bills. When the Fed started raising rates in March 2022, the ON RRP rate moved in lockstep, and MMFs shifted assets out of bank deposits and short-dated paper. The result was a massive liquidity sink that kept short-term rates elevated and handed MMFs an easy, high-yielding asset to hold.
Why the Drain Started and What It Does to MMF Portfolios
Two forces began emptying the ON RRP in mid-2023. First, the Treasury Department ramped up bill issuance after the debt-ceiling resolution, flooding the market with short-dated paper that yielded a few basis points more than the RRP rate. Second, the Fed’s ongoing quantitative tightening (QT) reduced bank reserves, nudging money market rates higher and making private repo and Treasury bills look better than the facility. By September 2024, ON RRP usage had fallen below $300 billion, and MMFs were actively redeploying that cash.
For a retail investor in a government money market fund—say, the Vanguard Federal Money Market Fund (VMFXX) or the Fidelity Government Money Market Fund (SPAXX)—this reallocation isn’t academic. When a fund manager moves cash out of the ON RRP and into 4-week or 8-week Treasury bills, the portfolio’s weighted average maturity (WAM) usually extends. A fund that ran a WAM of 15 days in early 2023 might now be running 30–40 days. That extension locks in yields for longer, which is nice when the Fed is on hold, but it also slows down the pass-through of any future rate cuts. The 7-day SEC yield you see on your brokerage statement is a backward-looking, annualized measure of the fund’s income over the past week. As the RRP drains, that yield gets stickier on the way down.
The 5-Basis-Point Wedge and the T-Bill Spread
The ON RRP rate is explicitly set at 5 basis points below the lower bound of the federal funds target range. When the fed funds range was 5.25%–5.50%, the RRP rate sat at 5.25%. In a world where the facility was heavily used, that 5.25% acted as a soft floor for other overnight rates. MMFs had no reason to lend to a counterparty at less than 5.25% when they could just park cash at the Fed. But as the facility drained, that floor lost its grip. By late 2024, with ON RRP balances below $200 billion, the effective federal funds rate (EFFR) and the Secured Overnight Financing Rate (SOFR) began to trade a basis point or two above the ON RRP rate, reflecting the shift in marginal demand for cash.
For a retail MMF, this means the yield on overnight repo and short-dated agency paper crept up by 2–3 basis points relative to the ON RRP rate. That small spread flows straight into the fund’s gross yield. On a $100,000 balance, an extra 3 basis points is $30 a year—not life-changing, but it explains why MMF yields didn’t fall in lockstep with the first Fed rate cut in September 2024. The drainage of the RRP facility created a temporary, countervailing upward pressure on short-term rates that offset part of the 50-basis-point cut for several weeks.
How the September 2024 Rate Cut Actually Hit Your MMF
On September 18, 2024, the Federal Open Market Committee lowered the federal funds rate by 50 basis points to a range of 4.75%–5.00%. The ON RRP rate moved down to 4.70% the same day. If you held the Schwab Value Advantage Money Fund (SWVXX), its 7-day SEC yield on September 17 was 5.15%. One week later, it was 5.05%. Two weeks later, 4.95%. The 20-basis-point decline over 14 days wasn’t the full 50-basis-point cut, and the reason is the RRP drainage. The fund’s weighted average maturity (WAM) was 35 days, meaning it still held older, higher-yielding paper purchased before the cut. As that paper matured and was replaced with new, lower-yielding bills, the yield drifted down gradually. By late October 2024, SWVXX’s yield was 4.65%, reflecting the new rate environment plus the fading boost from the RRP drainage.
This lag is predictable. A fund with a WAM of 30–40 days will take roughly that long to fully reflect a rate change, assuming no other portfolio shifts. The RRP drainage shortened that lag slightly because funds had to reinvest maturing RRP cash into bills, accelerating the turnover. But the higher yields on those replacement bills softened the blow. The net effect: a 50-basis-point cut translated into a 35–40 basis-point decline in MMF yields over 30 days, with the remaining 10–15 basis points of decline spread over the following month.
What a Drained RRP Means for the Next Rate Move
As of early 2025, the ON RRP facility is essentially empty, with balances hovering around $100 billion. This changes the transmission mechanism for the next Fed move. When the RRP was full, it acted as a sponge, absorbing excess liquidity and keeping the effective federal funds rate (EFFR) from drifting too low. Now that the sponge is dry, any further rate cuts will transmit more directly to repo rates, Treasury bill yields, and ultimately MMF yields. There’s no longer a large pool of cash earning 5 basis points below the policy rate that can be redeployed into higher-yielding assets to cushion the fall.
For a retail MMF, this means the next 25-basis-point cut will likely show up in your 7-day yield within 10–14 days, not 30. The WAM of most government MMFs has already shortened to 20–25 days as managers position for a declining rate environment. The yield you see will track the fed funds rate more tightly, with less of the “free option” that the RRP facility provided when it was full. If the Fed cuts again in March 2025, expect your MMF yield to drop by roughly 20–23 basis points within two weeks, with the remaining 2–5 basis points following over the next week.
Credit Access and the RRP Drainage: The Indirect Channel
The RRP drainage also affects the rates you pay on credit, though the link is less direct. When MMFs pulled cash out of the RRP and into Treasury bills, they reduced the supply of funding available to banks through the federal funds market. Banks that rely on wholesale funding to back credit card receivables or auto loans saw a slight uptick in their funding costs. For a prime credit card issuer, a 5-basis-point increase in short-term funding costs can translate into a 25-basis-point increase in the APR offered to new applicants, because card rates are priced off the prime rate plus a spread that reflects funding costs and risk. The prime rate itself is already priced into the 3.25% spread over the fed funds rate, but the additional spread over prime that a cardholder sees—say, 18.24% APR versus 17.99%—is where the RRP drainage shows up. This is already priced into the terms you see on a new credit card application today, with a typical 30–45 day lag from the shift in wholesale funding costs.
For a concrete example, consider the average credit card APR tracked by the Federal Reserve. In Q3 2024, the average APR on accounts assessed interest was 22.76%. By Q4 2024, after the RRP had drained and the Fed had cut rates, the average APR had only declined to 22.60%. The stickiness is partly due to the lag in repricing variable-rate cards, but also because card issuers widened their spreads to compensate for higher funding costs in the post-RRP world. This is a mechanistic outcome, not a forecast: when the marginal source of cheap overnight funding disappears, the cost of extending credit rises, and that cost is already priced into the APRs you see on new offers.
FAQ: Your Money Market Yield and the RRP Drain
Why did my MMF yield barely move after the Fed cut rates?
Two reasons. First, the fund’s weighted average maturity (WAM) means it holds older, higher-yielding securities that take time to mature and be replaced. A fund with a 35-day WAM will take about 35 days to fully reflect a rate cut. Second, the drainage of the ON RRP facility created a temporary boost in short-term yields as funds reinvested maturing RRP cash into higher-yielding Treasury bills, partially offsetting the cut. This effect is already priced into the current 7-day yield you see.
How does the RRP drainage affect my savings account rate?
Savings account rates are influenced by the same short-term rate environment as MMFs, but with a longer lag. When the RRP drained and Treasury bill yields rose, banks had less incentive to raise deposit rates because they could still attract funds with lower rates. As a result, the average savings account rate moved down more slowly after the Fed cut, but also never fully benefited from the RRP-drainage boost. The national average savings rate was 0.43% in October 2024, down only 3 basis points from September, while MMF yields fell 20 basis points. The transmission is already priced into the rates you see, with a typical 4–6 week lag for deposit products.
Will my money market fund yield go up if the RRP facility is used again?
Not directly. If the ON RRP facility were to see a surge in usage again—say, due to a flight-to-quality event or a Treasury General Account rebuild—MMF yields would not rise. Instead, the facility would act as a soft floor, absorbing cash and keeping short-term rates from falling below the ON RRP rate. Your MMF yield would be supported at roughly that level, but you would not see an increase unless the Fed raised the ON RRP rate itself. The facility’s usage is a signal of relative value, not a driver of absolute yields.
How long does it take for a Fed rate change to show up in my MMF?
With the RRP now drained, the pass-through is faster. A 25-basis-point cut will show up in your 7-day SEC yield within 10–14 days, with the full effect in 20–25 days. This is because funds now have shorter WAMs and are more directly exposed to overnight repo and very short-term bills. The lag you experience is already determined by the fund’s current portfolio composition, which you can check in its monthly holdings report.
What This Means for Your Next Move
The drainage of the ON RRP facility is not a market call; it is a balance-sheet fact that has already reshaped the yield curve for the instruments you own. If you are sitting in a government MMF, your yield is now more sensitive to the fed funds rate than it was in 2023, and the cushion that the RRP provided is gone. For a saver with $50,000 in a MMF, the difference between a 5.15% yield and a 4.65% yield is $250 a year in lost interest. That loss has already occurred. The question now is how quickly the next 25 or 50 basis points of cuts will hit your account, and the answer—based on current WAMs and the empty RRP—is within 30 days.
If you want to understand how these rate moves affect the other side of your balance sheet, read What a Rate Hold Actually Means for Credit Card Borrowers, which explains the specific APR lags built into your card agreement.
