MNI POLICY: Fed Balance Sheet at $7.03T, 37% of GDP

--Weekly Gain Led By MBS, Assets Up 66% Since March

By Evan Ryser

     WASHINGTON (MNI) - The Fed's balance sheet hit a record USD7.03 trillion,

led by mortgage-backed and Treasury securities, in a week where Chair Jerome

Powell said there are few limits on how large it can grow to bring the economy

through the Covid-19 pandemic. 

     The snapshot released Thursday shows the Fed's portfolio increased USD103

billion. The balance sheet now equals 37% of GDP and is set to grow larger as

the Fed builds emergency facilities and output shrinks.

     Balance sheet growth in the week through May 20 was driven by

mortgage-backed securities gaining USD79.1 billion to a record USD1.86 trillion

and Treasuries rising USD32.1 billion to a record USD4.09 trillion.

     The Fed has slashed interest rates to near-zero, restarted unlimited bond

purchases and rolled out unprecedented emergency programs to keep liquidity and

credit flowing. The Fed's balance sheet is up 66% from USD4.24 trillion in early

March. 

     --POWELL

     Powell told a Congressional committee Tuesday that however big the balance

sheet gets, a move to reduced holdings lies well into the future, and will

happen without much active management. 

     "Over time, the assets that we have on our balance sheet from this era will

come to maturity, they will roll off," he said. "This will be some years down

the road." 

     "It is not something that raises financial stability or inflation concerns,

today," Powell said. "I'm not saying there are no limits."

     What matters is the size of the balance sheet relative to the size of the

economy, Powell said. The Fed's holdings from the end of 2014 until 2017 came

down "just by holding the balance sheet constant," from 25% of GDP to 17%. 

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

[TOPICS: MMUFE$,M$U$$$,M$$CR$,M$$FI$]