THE FED THE FED THE FED

AN UPDATE ON THE FED BALANCE SHEET.BY JONATHAN BRICE

THE FED THE FED THE FED

Agenda

What is a balance sheet?Current makeup of the Fed Balance sheetRecent TrendsOutlookRun for the hills?

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 AccountsOriginal report contains 12 sections Released every Thursday afternoon around

4:30 p.m.

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%)

Current Assets (March 25 release)

Current Liabilities

Largest Liabilities: Depository

Institutions (51%) Fed Notes (39%)

Asset Trends

Selected Asset Trends

Fed Liquidity Facilities

Fed Institutional Supports

Selected Fed Liabilities

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

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

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?