US: Fed Balance Sheet

Thu May 17 15:30:00 CDT 2018

Actual Previous
Level $4.338T $4.358T
Total Assets - Weekly Change $-20.6B $2.1B
Reserve Bank credit - Weekly Change $-3.2B $-8.2B

The Federal Reserve's assets totaled $4.338 trillion in the May 16 week, down $20.6 billion from the prior week and down $122 billion from the beginning of balance sheet unwinding in October 2017.

Treasury holdings are $2.387 trillion in the latest week, down $78 billion since October and a little beyond target so far. Treasuries are scheduled to decline to $2.393 trillion by the end of this month.

In contrast to Treasuries, holdings of mortgage-backed securities are still not coming down fast enough, at $1.745 trillion in the week which is down $23 billion since October vs a scheduled decline by month end to $1.708 trillion. Note that mortgage-backed unwinding can be uneven due to unscheduled prepayments of principal as well as timing differences in payments and settlements.

Treasuries were the main factor draining reserves, down $8.0 billion in the latest week.

Reserve Bank credit for the May 16 week decreased $3.2 billion after decreasing $8.2 billion in the prior week.

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 to reduce its balance sheet by 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 will gradually increase in size before hitting a plateau in October 2018 where they will hold until the FOMC judges that the Fed is holding no more securities than necessary. Under the schedule for 2018, the Fed's Treasury holdings will be reduced by $270 billion while holdings of mortgage-backed securities will be reduced by $180 billion.

This report is likely to get increasing attention as the Federal Reserve normalizes its balance sheet, that is reduce it from the $4.5 trillion peak reached in October 2014. This peak was reached after the Fed, in an effort to hold down long-term interest rates and in turn stimulate the economy, began in late 2008 the direct purchases of U.S. Treasuries and mortgage-backed securities in unconventional policy known as quantitative easing. The complete unwinding is expected to take several years with the final balance sheet total still not targeted but widely projected in the $2.5 trillion area. The impact of the process, if any, would likely first be felt in the Treasury and mortgage-backed markets, where there will be one less major buyer, with ripples following in other markets including stocks. This is the first such unwinding of its size attempted by a central bank.