The Fed Added $344B In Treasury Bills In A Year
The following analysis breaks down the Fed balance sheet in detail. It shows different parts of the balance sheet and how those amounts have changed. It also shows historical interest rate trends.
Breaking Down the Balance Sheet
The Fed has quietly been doing Quantitative Easing since February. The pace of accumulation has slowed in recent months, and was even negative in August. When QE was turned back on, it was intended for purchases of Bills to keep liquidity high. As shown below, this is still happening with the Fed accumulating $29B of Bills in August. The net drop came from MBS and 5-10 year notes rolling off.
Figure: 1 Monthly Change by Instrument
Zooming out to 10 years and grouping the data by year shows the next chart. What you should notice is how quickly the Fed will un-do all the “hard work” in reducing the balance sheet during the next crisis. It took 4 years to reduce the balance sheet about $2.2T. However, in 2020, it took a few months to grow the balance sheet by $3T and 2 years to grow it by $4.5T.
So far this year, the Fed has increased the balance sheet by $90B. While this is a small increase relative to past years, it should be noted that the balance sheet is growing and not shrinking. This makes it harder for inflation to come down.
The next time provides more detail on the Fed’s activities and its recent efforts to manage the balance sheet.
The biggest thing to notice is how the Fed has increased the holdings of Bills by $344B over the last year! That is an increase that should not go unnoticed. Why is the Fed focused on buying Bills? Bills are typically the most liquid asset in the Treasury issuance list, so it’s confusing why the Fed has stepped in for...(READ THIS FULL ANALYSIS 100% FREE HERE).