Graphic: A look at the Fed’s balance sheet
The U.S. Federal Reserve acknowledged inflationary pressures last month, although it believes they are due to transitory factors caused by the economy’s reopening. Nevertheless, the central bank raised the possibility of higher short-term interest rates in late 2022 or early 2023. That makes this an opportune time to look at the central bank’s greatly expanded balance sheet.
Massive growth: The Fed kicked its asset purchases into high gear after the onset of the COVID-19 pandemic in early 2020. The size of its balance sheet was at $8.1 trillion as of June 30, nearly double the $4.2 trillion at the end of 2019.
Total Fed assets (trillions)
Appetite for Treasuries: The Fed’s U.S. Treasury holdings sat at $5.2 trillion as of June 30 vs. $2.3 trillion at the end of 2019. The increase was mostly driven by longer-term government securities — Treasury notes and bonds grew to $4.4 trillion from $2 trillion. Over the same period, mortgage-backed securities holdings increased 65% to $2.3 trillion.
Growth of Fed assets by category (trillions)
Major holding: The Federal Reserve held about 22% of outstanding Treasury securities as of the end of the first quarter, according to data provided by SIFMA. In 2008, it held roughly 6%. After enacting various quantitative easing programs during the Great Recession, that figure approached 20% in 2014 before declining over the next five years.
Holders of Treasury debt by category
Patient approach: From 2015 through October 2017, the Fed reduced assets by a negligible $25 billion to $4.5 trillion and to $3.8 trillion by August 2019. The 10-year Treasury yield peaked at more than 3% in 2018 before falling back to pre-tapering levels. As of July 9, the 10-year yield was 1.36%.
10-year Treasury yields
Sources: Federal Reserve; U.S. Department of the Treasury; SIFMA
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