MNI POLICY: Fed Balance Sheet USD7T, FX Swaps Lowest Since Mar

The Fed's balance sheet shrank USD7 billion over the past week to USD7.01 trillion, with foreign central bank FX swaps the lowest since March, data released Thursday showed.

Currency swaps with foreign central banks continued to roll off the Fed's portfolio driving the decline, down USD17 billion to USD72 billion.

That was partially offset as holdings of Treasuries increased USD7 billion to USD4.39 trillion, a new record high. Holdings of mortgage-backed securities were flat at USD1.95 trillion as of Sept. 9.

The Fed's total portfolio is up 65% since early March at 36% of U.S. GDP. Total assets peaked at a record USD7.17 trillion in early June but have since remained steady near USD7 trillion.

Officials have indicated in recent weeks that large-scale government debt purchases must transition from stabilizing markets to sustaining the economy during the pandemic, and greater clarity on Fed plans could come at next week's FOMC meeting.

Modest Main Street

Other facilities aimed at supporting markets have remained steady after early surges in March when the Fed announced programs and cut interest rates to near-zero.

"Usage to date across these facilities has not been particularly high," New York Fed Executive Vice President Daleep Singh said Thursday. But their positive influence has been "large and sustained, and I continue to attribute much of the facilities' initial success to the size, scope, and flexibility of these backstops."

The Main Street Lending Program was up USD208 million to USD1.4 billion. The Fed's marquee facility was again under criticism from lawmakers this week for not taking on larger loan amounts.

Senate Republicans have proposed ending the Fed's lending programs in January and re-purposing any unused funds for direct aid. At the same time, some legislators have advocated tweaking Fed lending facilities by lengthening loan terms, ending balloon payments, taking on greater risk, and having the Fed take on 100% of all loans, up from 95% currently.

The Fed 13(3) facilities could see greater usage in the months ahead should lawmakers in Washington fail to come to an agreement on further fiscal stimulus to aid the economy.