MNI POLICY: Fed Assets Post 1st Rise in 5W, Main St Aid Opens

By Evan Ryser

     WASHINGTON (MNI) - The Fed's balance sheet edged up for the first time in

five weeks, data released Thursday showed, and the first trickle of long-awaited

"Main Street" lending began. 

     The Fed's portfolio grew USD38 billion to USD6.96 trillion. The weekly

growth was driven by a USD37 billion increase in mortgage-backed securities and

a USD22 billion increase in Treasuries.

     FX swaps continued to roll off, with a weekly decrease of USD24 billion to

USD155 billion, down from highs of USD450 billion in late May. 

     The Fed's portfolio declined over the last month from a record high of

USD7.17 trillion due to the declining usage of emergency programs -- repo and

dollar swap facilities it rolled out for primary dealers and foreign central

banks at the height of the market turmoil in March and April.

     Purchases of corporate bonds continued at a USD150 million daily average,

down from highs of USD300 million per day, while reaching a total of USD11

billion. 

     New York Fed's Lorie Logan, the manager of the System Open Market Account,

said Wednesday about corporate bonds that "if conditions continue to improve,

Fed purchases could slow further, potentially reaching very low levels or

stopping entirely."

     --MAIN STREET BEGINS 

     Main Street lending saw usage for the first time, but only USD12 million,

the data showed when controlled for Treasury contributions.  

     Many, including ex-Fed Chair Ben Bernanke, have questioned whether the Fed

has been too strict in extending credit to smaller businesses. Chair Jerome

Powell has acknowledged that the program is "not getting a ton of interest."

     New York Fed President John Williams said Thursday that even if programs

aren't used that much, they provide the benefit of a backstop to the market. 

     The programs "demonstrate the Fed's strong commitment to prevent lasting

damage to the economy," he said. "The scale and reach of the response is an

indication of the gravity and unique nature of the situation we are facing."

--MNI Washington Bureau; +1 202 371 2121; email: evan.ryser@marketnews.com

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