The Federal Reserve releases its balance sheet details each week. These are no longer moving the credit markets as the perception is that the end of quantitative easing has started via the Fed’s bond buying tapering off. That being said, the Federal Reserve balance sheet is still growing.
A release from Thursday evening shows that the “securities held outright” from the Fed’s balance sheet was $4.044003 trillion at the week ending May 14, but it was listed as $4.062323 trillion on May 14. Mortgage-backed securities were shown to be $1.641693 trillion at the end of the week of May 14, up $9.818 billion from the prior week.
The Fed’s total assets held was $4.360314 trillion at the end of the week, a gain of $17.862 billion from the prior week.
The total of $2.361 trillion held in Treasury notes and bonds in the maturity distribution table included $910,075 billion in maturities from one to five years. Another $820.137 billion was in Treasuries with five to 10 year maturities, and another $630.485 billion were held in Treasuries in maturities over 10 years.
Again, this is nothing that will really move the market. The problem is that inflation is nowhere near the Fed’s 2.0% to 2.5% target, and the employment improvements are still far short of where Janet Yellen and team would like to see it. The tapering will continue by $10 billion per month, but until it ends the Federal Reserve’s balance sheet is growing and growing.
The Fed’s balance sheet is now getting close to double that of J.P. Morgan Chase & Co. (NYSE: JPM), which has $2.476 trillion in assets. Wells Fargo & Co. (NYSE: WFC) has $1.527 trillion in assets, and Bank of America Corp. (NYSE: BAC) has $2.149 trillion in assets. The Fed’s balance sheet was a mere $898.6 billion in August of 2008, before taking on bailouts and securities purchases.
Now think about the flow of this again: The Treasury creates the money and the Fed turns around and buys Treasury notes and agency mortgage-backed securities. And magically there is no inflation, with fears of deflation still in the air. What is a philosopher supposed to think?