MNI POLICY: Fed Balance Sheet Grows to Record USD7.24 Trillion

The Federal Reserve's balance sheet grew to a record USD7.24 trillion this week on increased holdings of mortgage-backed securities and Treasuries, data released Thursday showed.

Over the last week the Fed's assets increased USD68 billion, primarily from a USD51 billion increase in MBS and a USD32 billion increase in Treasuries. The Fed purchased about USD29 billion in nominal notes and bonds and USD2.4 billion in TIPS, to beat the previous record of USD7.18 trillion set on Oct. 21.

The balance sheet has grown 74% from the beginning of the year and is now 33% of the size of the U.S. economy before the crisis struck, up from 19% of GDP at the beginning of the year.

The Fed is buying at least USD80 billion a month of Treasuries and USD40 billion of MBS as it seeks to keep markets that froze up early in the pandemic running and to meet its longer-term goals of full employment and 2% inflation.

TREASURY WINDING DOWN FACILITIES

Much of the balance sheet growth came in March, April, and May as the Fed's emergency 13(3) measures came online to keep markets running smoothly.

The Treasury on Thursday announced it supports ending at year-end some of the Fed's emergency facilities, including its corporate credit facilities, municipal facility, and the "Main Street" lending program that have been stagnant since July. The Fed said extending the programs would be beneficial to help a "strained and vulnerable" economy.

On the liabilities side of the balance sheet, the Treasury's cash balance fell to USD1.54 trillion, a new low since mid-June as the federal government draws down on its record savings. The dip in the Treasury cash balance generated a corresponding USD41 billion increase in bank reserves with totals reaching just above USD3 trillion.