Tags: Money | Federal Reserve | balance sheet

What Is the Fed Balance Sheet?

By    |   Tuesday, 14 July 2015 11:59 PM

The Fed balance sheet is the Federal Reserve's tally of its assets and liabilities, a set of figures the central bank issues every Thursday.

The Fed's liabilities consist of U.S. dollars that are either circulating in the general economy or being held as the reserves that depository institutions — such as banks — are required to set aside to maintain solvency. When the Fed prints money, it is increasing its liabilities, until those dollars go out the door or become other banks’ required reserves.

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And that leads us to the Fed's assets, which consist mainly of the government securities the central bank buys and holds as part of its management of the economy. The asset portion of the balance sheet has expanded dramatically since the financial crisis.

At more than $4.2 trillion as of May 2015, the Fed balance sheet is "one of the biggest numbers in economics," as Quartz described it.

This is the result of the massive program of quantitative easing the Fed undertook — buying up government-backed securities such as Treasury bills in huge amounts — to keep the economy afloat through the worst phases of the crisis beginning in late 2007.

The Fed itself has at times sounded awed by the scope of its activities. These large-scale asset purchases "have collectively expanded the Fed balance sheet by close to $3 trillion from December 2007 to November 2013," the Federal Reserve Bank of St. Louis noted in a January 2014 report. "That figure is nearly four times the prerecession average."

The $4 trillion question is, "What does the Fed intend to do with all those bonds?" business writer William D. Cohan wrote in The New York Times. "Will it hold them to maturity? Will it sell them back into the market? Will the Fed's balance sheet ever return to its pre-quantitative easing size?"

What effect any of those moves might have on the economy is the other big unanswered question.

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The Fed balance sheet is the Federal Reserve's tally of its assets and liabilities, a set of figures the central bank issues every Thursday.
Federal Reserve, balance sheet
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2015-59-14
Tuesday, 14 July 2015 11:59 PM
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