The Federal Reserve Balance Sheet

What Is The Federal Reserve Balance Sheet?

The Federal Reserve's balance sheet is the record of the assets it holds - chiefly U.S. Treasury securities and agency mortgage-backed securities - and the liabilities it owes, such as currency in circulation and the reserves that banks keep at the Fed. The size of the balance sheet has become a policy tool in its own right. It grows during quantitative easing, when the Fed buys and holds more assets to ease financial conditions, and it shrinks during quantitative tightening, when securities are allowed to mature without full reinvestment. In this way the balance sheet is a direct visual record of the Fed's unconventional policy actions.

Why It Matters

The balance sheet moved to the center of monetary policy after 2008, when the traditional interest-rate lever hit its limit near zero. Its scale tells a dramatic story: successive rounds of asset purchases swelled the Fed's holdings from well under $1 trillion before the financial crisis to roughly $9 trillion at the pandemic-era peak. The Fed began an early attempt to shrink it in October 2017 through balance sheet runoff. Watching the balance sheet expand or contract offers a way to gauge how much unconventional support the Fed is providing, separate from where it has set the federal funds rate, which is why analysts track it closely.