MNI POLICY: Fed Balance Sheet +$213B To Record $6.93T on MBS

By Evan Ryser

     WASHINGTON (MNI) - The Federal Reserve's balance sheet grew USD213 billion

to a record USD6.93 trillion as of May 13, led by mortgage-backed securities

that Vice Chair Randy Quarles said don't need an emergency backstop. 

     MBS holdings rose USD178 billion to a record USD1.78 trillion. Treasury

securities rose USD37.1 billion to USD4.1 trillion from the prior week. The Fed

also began to purchase ETFs, adding USD305 million in the first two reporting

days.

     The Fed's balance sheet is now up 66% from USD4.2 trillion at the start of

the year, making it the policy focus after the central bank slashed interest

rates to around zero and all but ruled out negative borrowing costs. Policy

makers say they will do whatever it takes to sustain the economy through the

coronavirus pandemic.

     The Fed isn't considering an MBS facility though it's open to changing the

Main Street lending program, according to video of remarks released Thursday of

Quarles's testimony to a Congressional hearing. He downplayed chances the

pandemic will trigger a financial crisis, saying institutions were strong

beforehand and are resilient to a variety of scenarios.

     --RESILIENCE

     There's some evidence of resilience in Thursday's balance sheet figures,

with use of some emergency programs shrinking. The primary dealer credit

facility shrank by USD4.6 billion and the money market liquidity facility

declined by USD2.9 billion. 

     Use of the Fed's central bank liquidity swap lines, which allow foreign

central banks to exchange their local currency for dollars, shrank for the first

time since the announcement of the program. The swaps declined USD3.9 billion

but remain high at USD441 billion, with roughly half of the amounts standing at

the Bank of Japan. 

     Loan balances for the Fed's discount window, its last-resort lending

program, dropped to USD24.2 billion, its lowest level since it spiked March 18

to USD28.2 billion, just after interest rates were slashed.

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

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