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The Fed’s balance sheet modestly expanded during the week ended November 9th – which explains why Treasury yields were flat to down along the yield curve over the same period. The Fed’s Treasury and Agency security holdings increased by a combined total of approximately $26 million over the past week ($25 million Treasury holdings increase and a $1 million Agency holdings increase). Our view is that so long as the Fed is raising rates into a weak economy, it ought to keep the money supply flat. If the economy were to fall into a deep recession/depression, the Fed ought to expand the money supply. We expect the Fed Funds Rate to move higher until the entire Treasury yield curve is in positive real rate territory.
- Fed Balance Sheet – Treasuries: The Fed’s Treasury security holdings were approximately $25.0 million higher over the past week and $54.8 billion lower on a rolling 4-week total basis.
- Fed Balance Sheet – Agencies: The Fed’s Government Agency security holdings were approximately $1.0 million higher over the past week and $19.6 billion lower on a rolling 4-week total basis.
- The Fed’s balance sheet holdings: https://www.newyorkfed.org/markets/soma-holdings
- Excel file: Our Excel file detailing the Fed’s holdings of Treasury and Agency securities: HERE.