A $10 Trillion Fed Balance Sheet Is Coming
The enormous figure deserves attention, but for now the risks seem manageable.
Up to it.
Photographer: Andrew Harrer/BloombergThis is the first of two columns examining the extraordinary actions the Federal Reserve has taken to support the economy during the coronavirus pandemic, and the consequences for the central bank’s financial condition and balance sheet.
The Federal Reserve’s balance sheet is exploding, growing by about $3 trillion since mid-March and now totaling more than $7 trillion. It could conceivably exceed $10 trillion by yearend, as the central bank buys corporate bonds, municipal securities and makes loans to medium-sized businesses while purchasing $80 billion of Treasuries and $40 billion of agency mortgage-backed securities (MBS) each month. This would be more than double the peak that the Fed's balance sheet reached after the 2008-09 financial crisis.
So what should we make of this rapid growth? Do the Fed’s asset purchases represent monetization of the federal debt? Will runaway inflation be the inevitable consequence?