The balance sheet of the Federal Reserve has been soaring. In a weekly statement on its assets and liabilities as of late May, the US central bank reported that the amount of bonds and other securities ballooned to over $7 trillion for the first time on record. The balance sheet swelled almost twice in the recent six months. In autumn of 2019, the US Fed’s asset portfolio equaled nearly $4 trillion. Importantly, in that time the US economy was keeping on a steady pace of GDP growth, so the central bank did not find it appropriate to provide extra liquidity. However, the coronavirus pandemic forced Fed’s Chairman Jerome Powell to adopt aggressive monetary easing. In the latest six months, the Fed has been expanding the scale of bong buying with the growth of the pandemic crisis. So, the regulator pumped up its portfolio with $103 billion in a single week earlier in the year. The Fed added $120 billion in Treasuries and mortgage-backed securities in mid-March when the pandemic reached its peak. The downside of this method of economic stimulus is that the US Treasury is going to borrow another $3 trillion in the debt market in the nearest half a year. It is unclear who will be able to purchase debt securities in such a humongous amount. One of the plausible scenarios is that the US Fed will have to launch a new QE program, but the regulator should have an excuse for that.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
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