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POSTED ON March 1, 2024  - POSTED IN Exploring Finance

The following analysis breaks down the Fed balance sheet in detail. It shows different parts of the balance sheet and how those amounts have changed. It also shows historical interest rate trends. The analysis concludes that the resulting lack of Treasury demand is likely another reason Yellen is betting $2T on lower interest rates… she has to focus on the short-term of the curve to make sure the market can absorb the debt!

POSTED ON June 30, 2023  - POSTED IN Exploring Finance

The Fed managed to reduce its balance sheet by $45 billion last month. The majority of this was in Treasuries of 1-5 year maturities with a reduction of $55B. The next biggest reduction was in mortgage-backed securities MBS totaling $20 billion. This fell short of the target of $35 billion. In fact, the Fed has still never reached its MBS target since balance sheet reduction began.

Meanwhile, the central bank continues to add bank bailout loans to its balance sheet.

POSTED ON June 26, 2023  - POSTED IN Original Analysis

We tend to focus a lot on the Federal Reserve’s interest rate policy, while the central bank’s balance sheet stays in the background. But the balance sheet arguably has more impact on the economy over the long run.

Since the Fed began hiking interest rates in March 2022, it has also shrunk the balance sheet. But balance sheet reduction hasn’t been aggressive. In fact, the decline in the balance sheet since the pandemic is like a drop of water in the ocean compared to the massive expansion we’ve seen since 2008.

POSTED ON April 28, 2023  - POSTED IN Exploring Finance

The Fed is still bailing out banks.

The Bank Term Funding Program (BTFP) reached a new all-time high in April, suggesting that the banking crisis has not yet passed.

And while the aggregate balance sheet looks to be shrinking, the detailed data shows it is more complex than that.

POSTED ON March 31, 2023  - POSTED IN Exploring Finance

By now it should be common knowledge that the Fed has blown up its balance sheet rather quickly to combat the current banking crisis. As the chart below illustrates, the Fed added a gargantuan sum to its balance sheet in March, netting an increase of $324B.

POSTED ON February 24, 2023  - POSTED IN Exploring Finance

The Federal Reserve came close but still fell short of its $95 billion per month balance sheet reduction target through the last full week in February. This means the Fed has fallen short in 8 of the last 9 months.

And with rising interest rates coupled with even this modest balance sheet reduction, the Fed is also bleeding money.

POSTED ON December 3, 2022  - POSTED IN Exploring Finance

The Fed has a targeted balance sheet reduction of $95B a month. Up until this point, the Fed had failed to reach its target almost every month since QT began.

In the latest month, the Fed made up for their recent shortfall with a big balance sheet reduction of $139B, exceeding their target by 50%! Despite the larger-than-expected reduction, the Fed still missed its target on Mortgage Backed Securities (MBS).

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