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 sheet Recent Trends Outlook Run 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 Accounts Original 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?