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THE FED THE FED THE FED

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  1. THE FED THE FEDTHE FED An update on the Fed Balance Sheet. By Jonathan Brice

  2. Agenda What is a balance sheet? Current makeup of the Fed Balance sheet Recent Trends Outlook Run for the hills?

  3. Balance Sheet • A summary of the financial balances of the Fed. • Lists the Fed’s current Assets and Liabilities • For typical firm it would list A =L+OE, for the Fed it lists A=L+ Capital Accounts • Original report contains 12 sections • Released every Thursday afternoon around 4:30 p.m.

  4. Current Assets (March 25 release) • Largest Assets: • Securities, repurchase agreements, and etc (91%) • The Fed (typically) makes billions of dollars on these assets • Smallest Assets: • CB Liquidity swaps (0%) • Repurchase Agreements (0%)

  5. Current Liabilities • Largest Liabilities: • Depository Institutions (51%) • Fed Notes (39%)

  6. Asset Trends

  7. Selected Asset Trends

  8. Fed Liquidity Facilities

  9. Fed Institutional Supports

  10. Selected Fed Liabilities

  11. Summary of the Evolution • Phase1 : Efforts to provide short-term funding to the markets (Foreign-Exchange Swaps) • Phase 2: As the liquidity facilities wound down, the BS shifter towards the assets acquired under large scale asset purchase programs (MBS) • $1.8 trillion of Treasury, agency and mortgage-backed securities

  12. Outlook: Phase 3 The Fed will finish their purchase of MBS this week The Fed has tapered off purchases as programs approach their end, in order to help mitigate any possible adverse reactions

  13. Potential Risk • The banking system currently has more than $1 trillion in reserves • The Fed must implement a strategy to successful shore up liquidity • Inflation?