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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…

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Comment: Fed’s Beige Book reflected increased severity of economic downturn

The Fed’s Beige Book for the period between early April and mid-May had all 12 Districts describing various levels of contraction – most of them severe in tone. The report attributed the declines to “disruptions associated with the COVID-19 pandemic”. Although conditions and the cause were unsurprising, it is dispiriting to see how thoroughly the economy has been affected. As for the future, the report said, “Although many contacts expressed hope that overall activity would pick-up as businesses reopened, the outlook remained highly uncertain and most contacts were pessimistic about the potential pace of recovery.” This is the second Beige…

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Comment: FOMC meeting minutes from April 28-29 show a lot of things have yet to resolve

The minutes of the April 28-29 FOMC meeting are three weeks old. The content of the minutes in the context of the intervening period show that the FOMC is still comfortable with the decisions undertaken previously, and on course to do their part in navigating the crisis. The main points in the minutes were: Notable improvements in financial conditions reported by SOMA manager. Well, we knew that and it has continued in the intervening weeks. More progress should be made as a number of liquidity facilities come online. Nonetheless, “market participants remained very uncertain about the economic outlook, and contacts…

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Comment: Fed’s holdings of securities climb to nearly $5.7 trillion as of May 13 week average

The Fed’s holdings of Treasurys and Agency MBS continue to climb to record highs even as the pace of purchases is easing up. The Fed’s holdings of securities were up $67.5 billion in the May 13 week to $5.673 trillion, another record that will continue to be broken until the immediate need to support markets has resolved. There may be more purchases later to provide stimulus to the economy, but at present policymakers are focusing on addressing the crisis, not a recovery which has yet to begin. The Fed bought $41.6 billion in Treasury notes and bonds as of the…

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Comment: Chair Powell reminds that the Fed has done a lot and is ready to do more

In his introductory remarks in a webcast at the Peterson Institute on Wednesday, Chair Jerome Powell reminded that the Fed has "acted with unprecedented speed and force" in its response to the crisis, acting in "unusual and exigent circumstances" as required by the Federal Reserve Act to serve as lender of last resort and get the financial system through the present public health crisis. As he has since the start of the response to the COVID-19 pandemic, Powell noted that it will also take fiscal authorities' ability to provide funding and relief to complement the efforts by the Fed to…

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Comment: Fed’s holdings of securities rise at a slower pace as of Wednesday, May 6

The weekly average holdings of securities by the Federal Reserve rose more slowly in the data as of May 6. Holdings of US Treasurys, Agencys, and Agency MBS were up $43.0 billion from the prior week, the smallest increase since $38.0 in the March 18 week. The total is now a record $5.606 trillion and climbing. Holdings of US Treasury bills were unchanged at $326.0 billion. Holdings of notes and bonds were up $53.0 billion to $3.672 trillion. Agency holdings were unchanged at $2.3 billion while Agency MBS holdings were down $10.0 billion to $1.605 trillion. While the Fed is…

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Comment: Fed’s Senior Loan Officer Survey shows lending standards tightened significantly since prior report

There was a marked change of direction in the Fed’ Senior Loan Officer Opinion Survey on Bank Lending Practices for April from the January report. It was a result of the spread of COVID-19 and the impact that it had on the risks facing both lenders and borrowers. The report said, “Many banks also provided written comments about the coronavirus (COVID-19) pandemic in addition to answering the standardized survey questions. In these comments, banks reported that the changes in standards and demand across loan categories reported for the first quarter occurred late in March as the economic outlook shifted when…

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Comment: Fed slows pace of asset purchases in April 29 week while holdings top $5.5 trillion

The Fed's purchases of US Treasurys and Agency MBS slowed in the week ended Wednesday, April 29. Buys of Treasury notes and bonds slowed to up $81.5 billion, the lowest since the March 25 week. Purchases of Agency MBS were up $29.3 billion, well below the $110.1 billion in the prior week. The total buys of $110.7 billion brought the size of the balance sheet up to $5.563 trillion, another record high. In his post-FOMC meeting press briefing on April 29, Chair Jerome Powell indicated that the need to aggressively buy assets to support market functioning had diminished, but that…

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Comment: FOMC issues strongly worded meeting statement on April 29, committed to using full range of tools

From being "prepared to use it full range of tools, the FOMC statement of April 29 said it is "committed" to their use. There was no change in the fed funds target rate or the wording for forward guidance which said, "The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals." The FOMC will buy Treasury securities and Agency MBS. No upper limit to purchases was mentioned consistent with a previous statement. "In addition, the Open Market Desk…

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Comment: Federal Reserve takes a transparency step; continues to offer temporary changes in some regulation and supervision to help ease strains

In the latter stages of the financial crisis in 2007-2008, the Federal Reserve took some heat for not reporting who participated in discount window borrowing. Traditionally the Fed does not reveal borrowers in order to limit any stigma from doing so when prudent and necessary. While the borrowing from the discount window is from the lender of last resort – The Fed – it can be unhelpful in retrospect to publish that a firm was in trouble, however briefly. And there can be reasons for borrowing from the discount window that have to do with taking advantage of favorable rates…

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