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.
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.
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.
The Fed has a targeted balance sheet reduction of $95B a month. The Fed has failed to meet its target in 7 of the last 8 months with only an $81B reduction in January.
The Fed fell woefully short of meeting their $35B MBS target, seeing only $16.7B (less than 50% of the target). The Treasury target was met.
The Fed has a targeted balance sheet reduction of $95B a month. After reaching and exceeding this target last month, the Fed is back to undershooting.
This should not come as a surprise given the turmoil in the bond market this year and the lack of liquidity.
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).
The Fed is supposed to be reducing the balance sheet by $95B a month. This is up from $47.5B before September. As the chart below shows, the Fed has only succeeded in meeting or exceeding its goal a single time (August) in 6 months.
In the latest month, the Fed came up 25% short with a taper of only $72B. Even when removing the $10B increase of “Other”, which is a range of other instruments not related to MBS or Treasury, the Fed was still over $12B short of target.
The Fed has found it easier to raise rates than shrink its balance sheet. September was supposed to be the month when the Fed got serious about shrinking the balance sheet. After a few months of warming up with $47.5B monthly reductions, the Fed was going to step up in September and shrink by $95B ($60B in Treasuries and $35B in MBS).
That didn’t happen.
Is the Federal Reserve worried about the tanking mortgage and housing market? If their holdings of mortgage-backed securities (MBS) are any indication, the answer is, yes.
The Fed has finally started shrinking its overall balance sheet as promised, but they are not shedding MBS according to plan.
Another month in and the Fed is still struggling to implement Quantitative Tightening (QT). According to the plan the Fed outlined last May, the central bank should be shrinking the balance sheet by at least $47.5B a month, spread between $30B in Treasuries and $17.5B in MBS.
That’s not happening.
