Fed’s assets-to-GDP ratio dropped to 22.6%, first seen in 2013. Quantitative Tightening has shed 25% of total assets from peak.
By Wolf Richter for WOLF STREET.
Total assets on the Fed’s balance sheet fell by $33 billion in March, to $6.72 trillion, the lowest since May 6, 2020, according to the Fed’s weekly balance sheet today.
Since the end of QE in April 2022, the Fed’s balance sheet has declined by $2.24 trillion, or by 25%. In terms of the $4.81 trillion of pandemic QE from March 2020 through April 2022, QT has shed nearly half of them.
QT assets.
Treasury securities: -$22.5 billion in March, -$1.55 trillion from peak in June 2022, or -27% since the peak, to $4.22 trillion, the lowest since July 1, 2020.
In terms of the $3.27 trillion in Treasury securities piled on during pandemic QE, the Fed has shed now 47.5% of them.
Treasury notes (2- to 10-year) and Treasury bonds (20- & 30-year) “roll off” the balance sheet mid-month and at the end of the month when they mature and the Fed gets paid face value. Since June 2024, the roll-off has been capped at $25 billion per month. About that much has been rolling off, minus the amount of inflation protection the Fed earns on its Treasury Inflation Protected Securities (TIPS) that is added to the principal of the TIPS.
In March, the Fed received $2.5 billion in inflation protection, which was added to the TIPS principal. Without it, $25.0 billion in Treasury securities rolled off the balance sheet.
Mortgage-Backed Securities (MBS): -$14.3 billion in March, -$551 billion from the peak, to $2.19 trillion, where they’d first been in March 2021.
The Fed has shed 20% of its MBS since the peak in April 2022. In terms of the $1.37 trillion in MBS that the Fed added during pandemic QE, it has shed 40% of them.
MBS come off the balance sheet primarily via pass-through principal payments that holders receive when mortgages are paid off (mortgaged homes are sold, mortgages are refinanced) and when mortgage payments are made. But as sales of existing homes have plunged and mortgage refinancing has collapsed, far fewer mortgages got paid off, and passthrough principal payments to MBS holders, such as the Fed, have become a trickle. As a result, MBS have come off the Fed’s balance sheet at a pace that has been mostly in the range of $14-17 billion a month.
The Fed holds only “agency” MBS that are guaranteed by the government, where the taxpayer would eat the losses when borrowers default on mortgages, not the Fed.
Bank liquidity facilities: inactive.
The Fed had five bank liquidity facilities. The two that were invented during the March 2023 bank panic to deal with the fallout from the SVB collapse are now shut down: the Bank Term Funding Program (BTFP) and the Loans to the FDIC.
And the other three are essentially inactive:
- Central Bank Liquidity Swaps ($95 million)
- Repos ($0)
- Discount Window: $2.2 billion, down a tad from February. During the SVB panic, it had spiked to $153 billion.
The assets-to-GDP ratio. Before QE started in 2009, the Fed’s balance sheet grew over the years roughly in line with the economy as measured by “current dollar” GDP. So the ratio of assets not adjusted for inflation to GDP not adjusted for inflation was roughly stable. This assets-to-GDP ratio was 6.0% in 2008.
During the first rounds of QE, the ratio maxed out at 25% by the end of 2014. During pandemic QE, it maxed out at 35.5% of GDP in Q1 2020 as GDP had collapsed, and then, as GDP recovered while QE continued even faster, the ratio returned to 35.4% in Q1 2022, when QE stopped.
After $2.24 trillion in QT and three years of economic growth since Q1 2022, the ratio has dropped to 22.6% in Q1 (estimate), first seen in 2013:
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I still got a lotta cash to collect! If anyone knows where I left any of it, let me know!!!!
Unimpressive.
(The Fed’s slow QT, not the article). Thanks for the update :-)
I agree. The Fed NEVER should have touched MBS. The creators of that financial “product” should have gone to prison, or at least bankrupt.
“On the same day that the stock market suffered a disastrous and monumental meltdown, on the West Coast the Richter scale went off the charts and blew a fuse. Comment section was shut down by automatic circuit breakers to prevent a Doomsday scenario in the Richter zone.”
The president will address the nation early tomorrow morning to assess national security.
When will enough time have passed to try and reset the circuit breaker and restore comments to yesterday’s article?
Dec 31, 2099.
Howdy Lone Wolf. HEE HEE. Thanks for the laugh
I would have commented to the last post and would have been in time but I didn’t want to be the first poster.
Looks like tariffs are working as expected. I just manufactured a baloney sandwich in my kitchen.
You made me laugh like crazy, Harrold!
Sadly, I think, baloney sandwiches may become America’s largest export.
Thank you for your faithful, clear, data driven reporting, Wolf!
Wolf,
How does Bessent’s proposal to reduce regulatory burdens on smaller banks interact with the Federal Reserve’s ongoing QT? Do you think they will start throwing punches over liquidity?
“How does Bessent’s proposal to reduce regulatory burdens on smaller banks interact with the Federal Reserve’s ongoing QT?”
You’re trying to connect apples and oranges.
At a mere net $2.5B/month ($60B/year) this seems like treasury roll-offs have essentially stopped. If “adequate reserves” of treasuries is anywhere near “The Good Times” ($2.5Tish), not impossible given the return of the SRF, it would take 50+ years to reach this. Surely that is not the timescale they mean by “slower for longer”?!
You got your decimal in the wrong place. $25 billion.
Wolf,
I am speaking specifically of treasuries. Going forward it is $5B/month (and perhaps lower if $2.5B of TIPS coming in each month). This means that even if we wait “longer” (even decades) treasuries will have little ($30B-$60B/year) meaningful decrease.
I believe you are suggesting that the two biggest categories on the Fed balance sheet are fungible? As long as the total is going down it shouldn’t matter that treasuries are likely never to fall below $4T again? Or perhaps MBS are just a much higher priority that only after depleting them will the Fed consider (meaningful) draining treasuries again?
The Federal Reserve should never have bought a penny of MBS in the first place. They want a pat on the back for selling off 20% of the toxic assetts they bought in the first place.
I have no doubt the Federal Reserve wanted to buy stocks, crypto & tulip bulbs too.
The Federal Reserve created this bubble. They created this pump & dump. They criminally distorted all financial markets. Now most Americans cant afford a home & struggle to rent & eat. This is how the French revolution started.
End the Fed.
It’s not the FED. It’s the American Bankers Association that is at fault for our present issues.
Don’t confuse people with History; they hate that and prefer to stay in their caves.
The Federal Reserve has never bought any ‘toxic assets’ at all and they certainly have never engaged in any ‘pump and dump’ operations.
A simple way to get rid of the MBS on the Fed’s balance sheet in one transaction would be to sell/swap them to the Social Security Trust Fund.
The Fund would be able to get rid of its low yielding debt and get higher income and the Fed could swap the debt for cash from the US government and then “burn” the money.
End of problem.
On another topic, any comments on the huge fall in bank share prices in Japan?
IIRC the bank share index there went down about 11% today.
Might have something to do with the increase in the value of the yen….
You just want the SS Trust Fund to pay fees to Wall Street. Admit it. The SS Trust Fund doesn’t buy securities in the market and it doesn’t buy marketable securities at all, it totally cuts out Wall Street and Wall Street fees by buying Treasury securities directly from the government and selling them back to the government at face value when they mature. Wall Street doesn’t make a dime on these transactions. With MBS, everyone is taking their cut, including the mortgage servicer (a bank, for example) and the entities that guaranteed and securitized mortgages.
A portfolio of MBS is also a headache to manage because the cash from passthrough principal payments arrives in an unpredictable manner, sometimes a trickle, sometimes a flood, and that unpredictable cash flow then has to be reinvested pronto. The trading desk at the New York Fed is staffed to do. But even the Fed wants to get rid of them for these reasons.
I could care less about wall street and fees. They wouldn’t get one cent if the deal was done directly between the two.
The Fed could service them for nothing as part of the deal.
The yield on the MBS would be multiples of what the Fund gets now, they are risk free (according to you) as far as default is concerned and the duration is probably more or less equal to the Funds long term holdings.
the fact that the 10 year is now down to 3.88% lays waste to the argument from wall street and corporate america that tariffs will cause inflation. if they really believed that, the 10 year yield would be surging on inflation fears.
watch what they do, not what they say.
GOOD ONE FG:
Just EX act lee what has been needed for many years, at least since covid crazzy stuff killed any real possibility of various and sundry and extensive rational analyses of price and value discovery by the vast legion of ”small” investors…
Similar to others commenting on here, I have been OUT of the stock markets, but far longer. In fact since the 1980s showed me how clearly and thoroughly the PTB manipulated any possibility of my meager investments being anything but fodder for their profits…
RE far damn shore, and a few clear ”gambles” in silver that paid me a bunch, but also confirmed the ”casino” nature of the commodities mkts for anyone other than producers of commodities who both knew better in both the surges up and down…
And just a BTW,, I SO agree with the current ”tarriffs” surge, and just wonder who got paid SO much NOT to implement them sooner to at least TRY to correct trade balances, including just WHO/WHICH politicians of all stripes got the millions or billions of bribes to do it.
I think the logic is that this will lead to a severe recession that causes money printing and zero interest rate. Inflation will not happen because everyone would be so broke that they won’t buy anything.
Franz,
With all due respect, it lays waste to nothing. A tank in yield is from a flight to quality. And a fear of recession, not to mention the Fed easing rates as the economy sinks. A rise in yield would have been a big surprise.
If these tariffs stick for 6-12+ months, then we can judge whether 1) prices have risen, and 2) the bond market got its call on yields right.
What they’re doing is worrying about a recession. Sure, a recession will cure inflation but that’s like drinking bleach to kill the covid virus.
Wolf I really did not expect you to close the comments section on the other thread. I thought this was an open forum, not a mean to push your view above everyone’s elses. I know that your opinion matters a lot, you are very well versed. But reading about others opinions adds value and diversity. I guess diversity is a bad thing these days, no room for it, but I thought there was room here.
Post a pic of your beer/iced tea mug, and then we’ll see if your opinion is worth hearing.
Dani-
You took opportunity to opine to complain. Perhaps you missed the first chapter in required reading: “How to Win Friends and Influence People” by Dale Carnegie: If You Want to Gather Honey, Don’t Kick Over the Beehive – Don’t criticize, condemn or complain. It doesn’t work; it it counterproductive.
For example: China is retaliating Trump tariffs buy restricting rare earths. Don’t be surprised if Ukraine suddenly takes control of all rare earth mines in former Ukrainian territory. Just saying.
My conclusion to money supply contraction that Wolf Richter has documented is that there is no way for us to avoid a recession.
Dani,
You have no idea about the amount of manipulative politically-motivated lies and BS, often from foreign sources, that get posted on tariff articles. You just see the surface. They’re abusing my site to spread these lies and BS to manipulate people (much of the internet works that way). They’re just “flooding the zone,” trying to drown everything else out. It’s a huge waste of my time and an enormous aggravation for me to deal with this. They can post this BS somewhere else. A few years ago, I had this problem with articles that had “EV” in the headline, and it was bad, it may have been paid for by Big Oil, and a lot of it was just parroting this BS others had posted, and the explicit purpose was to persuade Americans to not buy EVs. One of the commenters actually explained this in a comment. I also harshly cracked down on it, including by deleting thousands of those comments and by shutting down comments entirely on two EV articles. This has largely died down now. But articles with “Tariffs” in the headline get it much worse. I have never seen anything like that.
The flak is always heaviest when you are over the target.
– Boyd K. Packer
Wolf…It’s not that I enjoy seeing you get attacked now and then. But when you do, I know you are over a sensitive target and sometimes that tells me as much if not more than the post itself.
Thank you for having the courage to call balls and strikes even if it costs you a few readers.
With you Gab, not to mention WITH WR in his many attempts, almost always, to bring rational thinking to the clearly majorly propaganda efforts by the oligarchy to take away most, if not all, of the advances of wages and small savers, against their wealth advantage.
NOT a fan of Trump as a human, but damn shore ”like” many, if not all of his policies, SO FAR…
That’s a salient observation.
Wolf, it is kind of a compliment to you in that so many players will launch what is effectively a denial of service attack on your comments section. It suggests that you have enough clout to warrant such an attack. However, I realize it is quite a hassle for you.
Wolf, maybe a good topic for an article would be to dig into how this ‘flooding the zone’ stuff works. I’m real curious how influential and how big the ‘bot’ industry is.
I don’t know what I don’t know. thanks
Post a link to the article and start a discussion somewhere else. It’s a big internet. Personally I appreciate that Wolf shuts down the comments when it becomes a troll fest. I don’t want to have to weed through all that garbage. Majority of articles don’t end that way and are debated rationally but some are just too. emotionally charged and politicized for the trolls to resist.
You are acting like Wolf shut down the comments section for all articles, or personally banned you, yet here you are commenting. I find Wolf to be one of the most fair and generous human beings regarding commenting that I have ever seen.
And this is coming from a person who was deleted and censored massively in the beginning several years ago as I learned to live by his commenting rules, which are posted on this site.
For all intents and purposes the QT of Treasuries is over.
But the rolloff of MBS continues and while it seems small at ~$15B a month, that’s 500 million dollars a day – think of it as a thousand houses being refi’ed or paid off every day. Assuming the Fed stays out of the MBS business now, it’s still going to take 10-12 years to fully clear these mortgages but a recession will speed up the process.
Why do you say that? They’re still rolling off $25bil a month. They have indicated they might pause during the debt ceiling fiasco, but every indication is that they would resume after that.
Lune,
They announced at the last meeting that they wouldn’t pause at all, but keep going with QT at a reduced pace, of about $20 billion a month in total, down from about $40 billion a month. They will reduce the Treasury runoff from $25 billion a month to $5 billion and leave the MBS runoff unchanged without cap. About $15 billion of MBS have come off per month through passthrough principal payments. So at that pace, the total runoff will be about $20 billion per month.
Wrong side of the ledger. Reserves are growing:
https://fred.stlouisfed.org/series/TOTRESNS/
Reserves are the basis for the distributed lag effect of money flows. The economy is being run in reverse.
1. They declined over the past two weeks.
2. You linked an outdated monthly chart through February. Look at the weekly balance sheet (scroll down to “Reserve balances with Federal Reserve Banks” on the first page). Level as of Wed evening Apr 2: $3.427 trillion. The high point this year was $3.468 trillion on Mar 19. But even that high point was down year-over-year.
https://www.federalreserve.gov/releases/h41/20250403/
3. The TGA is being drained due to the debt ceiling. The TGA, reserves, and ON RRPs are all liabilities on the Fed’s balance sheet. As the TGA gets drained, some of that cash flows to the other two liabilities, reserves and ON RRPs. ON RRPs have risen by $160 billion since then. So that’s where part of the TGA cash went. And some of the TGA cash went to reserves that would have otherwise declined quite a bit, but with the incoming cash from the TGA, they went up a little and then declined again.
4. $2.2 trillion in QT so far first drained $2.2 trillion out of ON RRPs, and now it’s draining reserves, but both are now getting cash from the TGA drain due to the debt ceiling. Once the debt ceiling is lifted, the government will refill the TGA very quickly, which will such the cash out of ON RRPs and reserves.
A correction is a decline of 10% or greater in the price of a security, asset, or a financial market. Market corrections occur relatively often. Between 1980 and 2020, the S&P 500 experienced 18 corrections.
Waking up from the ZIRP dream with a hangover and headache?
Nope, checks freezer…. Yes, T-bills and CD are still chilling.
What is the odds that Fed will intervene by an emergency rate cut in the weekend? I think the panic might spread to banking system and cause some banks to fail.
You can always hope. Hope is good.
How would the Fed frame an emergency rate cut on a strong jobs report and accelerating inflation? That would be an interesting thing.
But a sharply falling stock market, if it falls sharply long enough, might actually do the Fed’s work in pushing down inflation.
Powell just said a few minutes ago that the Fed is in a wait and see mode. No emergency cuts. The stock market bubble is deflating somewhat. It will crash eventually, tariffs or no tariffs. It always does.
Trump has still not figured out the difference between short and long term rates. While I agree with most of Trump’s policies, he is a complete idiot when it comes to interest rates. Bessent needs to talk to him. BTW, long term rates have dropped like a rock the past couple of days.
Yes, a month ago Disney offered me $4.99 for four months to sign back up for their streaming service.
Today it’s $2.99 for four.
For those sitting in cash, more and more things are going to be on sale. Just don’t whine if they aren’t the things you were waiting for or wanted.
Actually LOOK at a chart of the S&P over the last ten years. Look at the insane parabolic rise and ask yourself why this needs to be “saved”? For who?
The S&P is fairly priced around 2800. This is less than a 60% drop from the all time high – hardly a catastrophe. The Nasdaq fell 85% by 2003 and tech companies kept going – the survivors were stronger.
https://www.cnbc.com/quotes/.SPX
Looking at 5 year weekly charts one can surmise the naz, indu and spox can drop down to the 200 av and still be in a long term bullish uptrend.
The TNX is around 3.5%. No need for anyone to panic foe another few days or weeks.
….despite media fear tactics which are non stop. NPR sounds like Jim Cramer on a bender.
Zero.
“We are well positioned to wait for greater clarity before considering any adjustments to our policy stance. It is too soon to say what will be the appropriate path for monetary policy.”
….and there we have it.
Since when is a 20% drop from all time highs a panic?
I am all in favor of giving Walmart a kick in the groin. Years ago I went to buy a simple frame for a photo and EVERYTHING was Chinese. I finally went somewhere else where I was able to get one from somewhere else. Since then, I avoid Walmart (Chinamart) like the plague. I hope they go bankrupt.
Walmart is certainly not going to go bankrupt. It has always been ChinaMart since its inception. That’s was its price advantage. What on earth is wrong with that? Chinese goods are typically much high quality and better in every respect than US goods.
The first Walmart opened in 1962 and its rapid growth in the 1970s and 1980s long predated the integration of China into the world economy. After all, China was busy with a cultural revolution until 1976. I still remember Walmart advertisements in the 1980s touting “Made in the USA” during the trade issues of that period.
If it’s intended as deadpan humor, then your comment is pretty funny.
Wolf,
Looks like someone is buying the ten-year, is this really simply a “flight to safety” trade? Curious on your take. Either way, it looks like everyone’s covered calls will be in the money…
J Powell is speaking currently and the market is crashing again with his every word. He said the economy is strong. He has become delusional. He keeps reciting the same old tired Fed talking points. If anyone believe this bull s$it, I’ve got a bridge over the East River in NYC I can sell you.
The Federal Reserve has NOTHING WHATSOEVER to do with the turmoil in the equities and commodities markets and there is nothing whatsoever that they can do or will do about that situation.
Agree. Cut rates sharply they play with inflation fire which will bury a big chunk of Americans unless there is another massive real estate bailout to prop up this fake economy held together by band aides, napkins, toothpicks and old glue.
This isnt 2020 anymore. There is an ongoing inflation problem now which is accelerating with an economy that is deteriorating.
Stagflation might be a good thing with the ways things look currently, It could easily get much worse than stagflation. Play your cards accordingly…
Swampman, do you have title to what you’re selling? Do you rtgdfas, or just come on to spew YOUR bullshit? At least read the data and listen once in a while.
The data is valuable but also to a degree useless.
In the 70s, it took 2 major black swan events to cripple everything. The oil embargo and the energy crises made inflation soar and brought everyday consumers to its knees. You could have all the data, but those 2 events still would cripple the economy making the data useless.
All we have on the table right now is tariffs. Can you imagine a black swan event happening right now in todays massively overinflated stock market / real estate market? There is zero risk priced in to anything. That is about to severely change imho.
Harley Davidson moved all of their Motorcycle production to Thailand from Milwauki Wis. Now they are facing a 75% tariff on all imports from Thailand. How long do yuo think it will be before they file for bankruptcy?
The local Harley Davidson dealer sponsors a video clip of the national anthem every night just before midnight on the local Fox station where I watch Seinfeld reruns at 11:30. Those hypocrites! I always turn it off.
Poor Harley Davidson. They went woke, off-shored their production, and make a relatively inferior product,. Three strikes and you’re out.
A quick review of the 10K reveals that Harley manufactures in Thailand to supply Asian and European markets, not the US.
MW: Trump calls on Powell to cut interest rates as Fed chair begins scheduled speech
MW: Fed chief Powell says it’s too soon to say how the central bank will react to tariffs
Wolf-
Based on your graphs, it looks like the slope of the treasuries decline flattened a little somewhere in mid-2024. Given that they’re still rolling off the same amount of treasuries each month, why would this be? Or are my eyes just failing me?
Also, re: MBS, since they’re no longer buying anymore, every month their portfolio of loans gets older, which means the percentage of people’s mortgage payments that goes to principle vs interest increases. So even without refinances, etc the rate of MBS balance declines should gradually increase as amortization schedules mature. Shouldn’t we start seeing this in the MBS rolloff numbers? Or is that effect still too small and is still being swamped by the cont’d decline in refinancings?
In June 2024, the Fed reduced the Treasury runoff from $60 billion a month to $25 billion a month. But they removed the cap on MBS runoff which don’t run off that fast anyway unless there is a huge wave of refis.
We are in the final months of trend line matching the silhouette of the Lock Ness monster. SAD
MW: Fed chief Jerome Powell indicates he’s in no hurry to reduce U.S. interest rates