US Fed balance sheet increases to record US$6.62t

[CONNECTICUT] The Federal Reserve's balance sheet increased to a record US$6.62 trillion this week as the central bank used its nearly unlimited buying power to soak up assets to keep markets functioning amid an abrupt economic free fall due to the coronavirus pandemic.

Since early March, the Fed has slashed interest rates to zero, restarted bond purchases and rolled out an unprecedented range of programs to keep credit flowing and shore up business and household confidence.

The central bank's balance sheet as of Wednesday rose about US$200 billion from US$6.42 trillion a week earlier. That is up from just US$4.29 trillion in the first week of March.

It is now the equivalent of roughly 30 per cent of the size of the US economy before the crisis struck, and will certainly grow larger in the weeks ahead as the Fed keeps piling on assets and the economy shrinks.

The central bank continued to snap up Treasury securities, mortgage bonds and other assets, according to data released on Thursday. The Fed's holdings of mortgage-backed securities rose to US$1.62 trillion from US$1.57 trillion. Treasury holdings rose to US$3.91 trillion from US$3.79 trillion.

Use of the Fed's central bank liquidity swap lines, which allow foreign central banks to exchange their local currencies for dollars, rose to US$409.7 billion on Wednesday from US$378.3 billion the previous week.

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Loan balances for the Fed's discount window, its last-resort lending program for banks, fell to US$33.7 billion from US$36.3 billion a week ago.

Loans with the Fed's primary dealer credit facility dipped to US$31.5 billion from US$33.4 billion the previous week. Use of the money market mutual fund liquidity facility slipped to US$48.8 billion from US$50.7 billion the week before.

The Commercial Paper Funding Facility II, a special-purpose vehicle set up by the Fed with seed money from the US Treasury, rose to US$2.7 billion from US$974 million on April 15. That facility began operations last week.

The newest item appearing on the Fed's balance sheet was loans it has taken on from banks participating in the Small Business Administration's "Payroll Protection Program" (PPP), initially rolled out at US$349 billion but set to be expanded under new appropriations from Congress after the original amount ran out in less than two weeks. The Fed held just over US$8 billion of PPP loans as of Wednesday, an amount certain to rise in the coming weeks.

The Fed also said it will shortly announce new rules to expand access the PPP beyond banks, so that a broader set of institutions can participate.

REUTERS