Fed’s Balance Sheet Liabilities Surge to Record

Moneynews.com
January 15, 2010

The U.S. Federal Reserve’s balance sheet rose to a record level in the latest week, boosted by its ongoing efforts to support the mortgage market, Fed data released recently showed.

The Fed’s balance sheet — a broad gauge of its lending to the financial system — rose to $2.274 trillion in the week ended Jan. 13 from $2.216 trillion in the prior week.

After declining early last year, the balance sheet generally has been accumulating mass amid the Fed’s asset-buying, or quantitative easing, program.

Given that this program has led the central bank’s holdings of agency debt and mortgage-backed securities to grow to more than $1 trillion, the balance sheet rise reported on Thursday came as little surprise.

“It is probably expected,” said William Larkin, fixed income portfolio manager at Cabot Money Management in Salem, Massachusetts.

The rise in the balance sheet came on the back of a jump in its holdings of agency mortgage-backed securities, which rose to $968.59 billion in the week ended Jan. 13 from $908.74 billion in the previous week.

The Fed’s holdings of agency debt totaled $160.83 billion in the week ended Jan. 13 versus $159.88 billion the previous week.

By the end of March, the Fed plans to have bought $1.25 trillion worth of mortgage-backed securities and about $175 billion worth of agency debt.

At that point the balance sheet growth would be expected to taper off, though some say the Fed will find it difficult to end by that deadline if the economy hasn’t improved markedly.

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