Board of Governors of the Federal Reserve System

As part of the continuing program of operational testing of its policy tools, the Federal Reserve plans to conduct a series of eight consecutive seven-day term deposit operations through its Term Deposit Facility (TDF) beginning in October. Term deposits in this series will incorporate an early withdrawal feature that will allow depository institutions to obtain a return of funds prior to the maturity date subject to an early withdrawal penalty. Technical details regarding the early withdrawal feature are available at www.frbservices.org/centralbank/term_deposit_facility.html .

The Federal Reserve currently anticipates that over the first four operations, the maximum award amount will be increased gradually to an amount not to exceed $20 billion; the interest rate paid on these initial four operations will be maintained at 26 basis points. Over the subsequent four operations, the Federal Reserve expects to increase the interest rate paid in small steps to a level not to exceed 30 basis points.

These operations are designed to ensure the operational readiness of the TDF and to provide eligible institutions with an opportunity to gain familiarity with term deposit procedures. Details for each of the weekly operations, including the maximum award amount, rate offered, early withdrawal penalty, and other terms, will be announced nearer to the time of each operation on the Board’s website. The development of the TDF and the ongoing TDF test operations are a matter of prudent planning and have no implications for the near-term conduct of monetary policy.

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