Despite rising through the month, the Fed balance ended up shrinking slightly by $25 billion in May, even as it slightly increased its Treasury holdings.
This was the first monthly decline in the balance sheet since $220B of “Other” rolled off in July 2020. In that case, “Other” were repurchase agreements with foreign entities to provide liquidity and alleviate stress in the global markets.
For the second month in a row, the Fed held true to its word and kept the balance sheet relatively flat. In aggregate, the balance sheet expanded by only $2B, though it did reach an all-time high mid-month. The drop to close out the month came as a result of $15B in mortgage-backed securities rolling off in the latest week.
The US Treasury added $111 billion in debt during March. Meanwhile, rising interest rates are already creating problems for Uncle Sam. Annualized interest on the US debt has increased by over $16 billion in just six months. Following is an analysis of US debt holdings.
It appears quantitative easing has pretty much come to an end. At least for now.
Although the Fed was still expanding the balance sheet through mid-month, it only added a net $9B to the balance sheet during March. This was accomplished with moderate purchases of short- and long-term debt, while 5–10-year notes had a $20B runoff. MBS (light green) was surprisingly quiet with a net $2B runoff, but this disguises the typical volatility seen in MBS weekly purchases.
If you thought the federal government running a budget surplus in January was a sign that Washington D.C. was getting its fiscal house in order, you’re going to be disappointed.
Uncle Sam ran the biggest deficit since last July in February.
The latest seasonally adjusted inflation rate for January was 0.8% month over month. The non-seasonally adjusted annual rate came in at 7.87%. Both of these numbers were slightly above expectations.
Unlike last year, where one component made up the bulk of the move, the past several months have shown increases more evenly spread across the CPI. This shows that inflation continues to become more widespread. And there is no sign it is slowing down.
February was another very strong jobs month with the economy adding an estimated 678,000 jobs vs an expected 400,000.
The unemployment rate came in at 3.8%, down from 4%. Labor force participation also improved, rising from 62.2% to 62.3%. Both December and January numbers were revised upwards.
There have been some major adjustments to headline data numbers so far in February from the BLS, the Fed, and now the Comex.
This analysis focuses on gold and silver delivery volume on the Comex. See the article What is the Comex for more detail.
Even with the taper, the Fed continues to expand its balance sheet. And it’s not tapering the purchase of mortgage-backed securities (MBS) nearly as fast as advertised.
The latest seasonally adjusted inflation rate for January was 0.65% month over month, with a non-seasonally adjusted annual rate of 7.48%. Both of these numbers came in above expectations.
As hypothesized last month, it was very possible that Omicron temporarily restrained inflation in December and a rebound should be expected. It did not take long for the rebound to occur!