Friday, February 11, 2011
Fed Balance Sheet Update
The latest information on the state of the Fed's balance sheet is available here. The Fed continues to purchase long-term Treasury securities at about the rate set out in the QE2 plan in November, with securities holdings increasing by $28 billion over the previous week. Of particular note is that reserves increased by $64 billion, in part due to the Fed's asset purchases, and in part because balances in the Treasury's reserve accounts fell by $41 billion. The balance in the Treasury's general account fell by $16 billion and, of particular note, the balance in the Treasury's supplementary account fell by $25 billion. It is clear what a reduction in the Treasury's balance in the supplementary account does: it increases reserve balances held by the private sector, and reduces outstanding Treasury debt. However the reason for the existence of the account, and the motivation of the Treasury to change the balance in the account are mysteries. The last time there was a reduction in the balance, beginning in October 2009, the Treasury reduced the balance by $35 billion per week until it was close to zero, then increased it again to a level of $200 billion. Presumably there will be reductions at the rate of $25 billion per week again. Another point of interest is that there was a substantial increase in currency outstanding in the past week, of about $8 billion, or about 0.8%. Year-over-year, the currency stock is now growing at about 6%. Thus, QE2 is now producing much greater growth in outside money than it was.