What Is the Fed Balance Sheet?
The Fed balance sheet is a statement listing the assets and liabilities of the Federal Reserve System. Details of the Fed's balance sheet are disclosed by the Fed in a weekly report called "Factors Affecting Reserve Balances."
- The Fed balance sheet is a listing of the Federal Reserve's assets and liabilities.
- The Fed's assets and liabilities are disclosed in a weekly report by the Fed.
- The Fed's balance sheet has grown dramatically since 2008 to support the economy after the global financial crisis and again following the outbreak of the COVID-19 pandemic.
Understanding the Fed Balance Sheet
The Fed is the central bank of the United States, founded by Congress in 1913 to ensure the stability of the nation's financial and banking systems in times of crisis.
For much of its history, the Fed's balance sheet was a sleepy topic. Issued every Thursday, the weekly balance sheet report counts the assets and liabilities of the Federal Reserve by type just as a corporate balance sheet does, providing a consolidated statement of the condition of all 12 regional Federal Reserve Banks.
The Fed's assets consist primarily of government securities it has bought and credit extended to banks and other financial institutions. Its liabilities, meanwhile, include bank and Treasury reserve balances on deposit with the Fed as well as U.S. currency in circulation.
The weekly balance sheet report became more important as a financial and economic indicator after the 2008 financial crisis, when the Fed initiated a policy of quantitative easing (QE). The Fed balance sheet gave analysts added insight into the scope and scale of Fed market operations. In particular, it allowed analysts to monitor the pace of asset purchases.
The Fed Balance Sheet and Quantitative Easing (QE)
QE is a monetary policy in which a central bank purchases large quantities of government bonds or other securities on the open market in order to hold down long-term interest rates and signal loose monetary policy.
The Fed (and other central banks) have used quantitative easing, also known as large scale asset purchases, to support economic growth beyond what could be achieved by lowering short-term interest rates to zero.
The policy has drawn political criticism but has become an increasingly common response to economic and credit crises, used effectively by the European Central Bank and the Bank of Japan alongside the Fed.
The Fed's balance sheet may look somewhat like a corporate one, but central banks are unique in their unlimited supply of currency. In contrast to a corporation, the Fed and other central banks exist not to make money but to ensure economic and financial stability.
The Fed's role is akin to that of the bank in the board game Monopoly: its goal is not to win but to supply enough money to keep the game going. The right amount of assets for the Fed is that which best enables it meet its mandate.