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Comment: Fed’s holdings of securities little short of $6 trillion in May 27 week

The Fed’s holdings of securities outright increased by $86.2 billion in the average of Wednesday, May 27 to $5.959 trillion as purchases of US Treasury notes and bonds and Agency MBS continue. Purchases of notes and bonds were up $27.0 billion while MBS were up $59.1 billion. While concerns remain about the ever-increasing size of the balance sheet and how it can be reduced after the crisis, the purchases have had the effect of calming financial markets and ensuring these have ample liquidity.

Activity in repo markets remained elevated as of the May 27 week, although it is normal for that to increase toward month-end. Discount window lending has slacked off as markets have stabilized and the total has now declined for a sixth straight week. Central bank swap lines continued to be used to ensure dollar funding.

Holdings associated with the liquidity facilities in use to address strains in credit markets are showing that the initial use of the Primary Dealer Credit Fund is falling off. To a lesser extent use of the Money Market Mutual Fund Lending Facility is less as well. However, the Paycheck Protection Program fund is in increasing demand, in part as its reach is extended and businesses are anxious to retain or rehire skilled workers that have had to be laid off. Other facilities are just coming into wider use and it is hard to know how much demand will be there.

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