Highlights Federal Reserve's assets totaled $8.221 trillion in the July 28 week, down $19.1 billion from the prior week. Since the Fed ended its balance sheet unwinding effective August 1, 2019, the balance sheet has increased by $4.442 trillion and is up $3.761 trillion from the level at the start of the unwinding in October 2017.
For the July 28 week, Treasury holdings totaled $5.264 trillion, up $20.8 billion from the prior week and up $80.4 billion from the June 30 week. Holdings of Treasury bills remained unchanged from the prior week while holdings of Treasury conventional notes and bonds were up $17.8 billion and holdings of inflation-indexed notes and bonds were up $2.0 billion. The rise in Treasury securities held outright also reflects a decrease of $1.0 billion for the adjustment of the effects of inflation on the original face value of inflation-indexed notes. Note that in response to financial market turmoil due to the coronavirus pandemic, the Fed announced following an unscheduled weekend meeting that effective March 16, 2020, that it would increase its holdings of Treasury securities across all maturities by at least $500 billion in the coming months. In further action related to the coronavirus pandemic, the Fed announced on March 23, 2020 that its purchases of Treasury securities will be in amounts "as needed" to promote a swift recovery.
Holdings of mortgage-backed securities (MBS) were $2.385 trillion in the latest week, down $37.4 billion from the prior week but up $65.1 billion from the June 30 week. Note that as part of its QE to promote market stability in response to the coronavirus epidemic, the Fed announced that effective March 16, 2020 it would roll over all principal payments from agency MBS debt into MBS and increase its MBS holdings by at least $250 billion over the coming months. In further action responding to the coronavirus pandemic, the Fed announced on March 23, 2020 that its purchases of MBS will include commercial MBS and will be in amounts as needed to promote a swift recovery.
The overall weekly change also reflects a decrease of $1.4 billion in loans and a decrease of $1.1 billion in unamortized premiums and discounts on securities held outright.
Reserve Bank credit for the July 28 week rose $25.2 billion after rising $94.5 billion in the prior week.
Definition The Fed's balance sheet is a weekly report presenting a consolidated balance sheet for all 12 Reserve Banks that lists factors supplying reserves into the banking system and factors absorbing reserves from the system. The report is officially named Factors Affecting Reserve Balances, otherwise known as the "H.4.1" report.
In September 2017, the Fed announced a program of quantitative tightening to reduce its balance sheet through the gradual reduction of both its Treasury and mortgage-backed security holdings. The monthly reductions, executed by reinvesting a decreasing amount of maturing securities, began in October 2017 and gradually increased in size before hitting a plateau in October 2018 at $30 billion per month for Treasuries and $20 billion per month for MBS. These levels of monthly reduction were then extended into future months of 2019 though the Fed indicated in January that it would likely bring the program to a close by the end of the year. In May 2019, the Fed cut the monthly reduction cap for Treasuries to $15 billion and following a subsequent an announcement in July ended the program on August 1, 2019. However, a lack of liquidity causing disruption in the repo market in September prompted the Fed to add liquidity by lending cash in exchange for Treasuries via repurchase agreements, and to subsequently announce - while emphasizing that it was not a monetary policy measure but a technical one to ensure ample reserves in the banking system - that it will gradually increase its balance sheet again starting on October 15 with monthly T-bill purchases of around $60 billion until at least the second quarter of 2020. In addition, to ensure that the supply of reserves remains ample even during periods of sharp increases in non-reserve liabilities, and to mitigate the risk of money market pressures , it said it would continue to conduct term and overnight repurchase agreement operations at least through January 2020, later extended in the implementation note of the January 2020 FOMC statement to at least through April 2020. Why Investors Care