Interesting Plot of Fed Balance Sheet Management

[Joe Leote]

Using Flow of Funds Accounts table L.109 define items from the simplified Fed balance sheet:

MPA = L.109.12, Monetary policy assets equal Treasury securities held outright.
CPA = L.109.01 - MPA, Credit policy assets equal total assets minus MPA
CC = L.109.37, Currency outside banks.
FF = L.109.28 + L.109.35 + L.109.36, Fed funds equal reserve balances, balances to rest of world, and to GSEs.

The chart below shows:

MPA = CC, (approximate) on the period until late 2007
MPA = FF, (approximate) on the period staring in 2010 to year end 2011

The simplification defines monetary policy assets MPA as liabilities of Treasury, and credit policy assets such as discount loans, special liquidity programs, repo, and private asset purchases under QE as liabilities to the private non-sovereign sector and assets of Fed. Other Fed assets are considered negligible so CPA may be overstated (not shown in the plots below).

I am not clear on the policy rationale or implications of setting Fed setting MPA = FF but it is an interesting observation for contemplation and potential discussion.



Joe