Saturday, September 5, 2009

Fed balance sheet

Thought of the day: the Fed announced in August that they would slow the pace of treasury purchases in order to last through October:
To promote a smooth transition in markets as these purchases of Treasury securities are completed, the Committee has decided to gradually slow the pace of these transactions and anticipates that the full amount will be purchased by the end of October.

However, as of September 2nd, they already hold 288 billion in treasuries. They have been averaging 12.5 billion of purchases a week since April, and 8.5 billion/week over the past 2 weeks. With only a total of 12 billion of purchases left over the next 8 weeks, they will either
a) be purchasing an inconsequential amount (1.5 billion/week) for the remaining 8 weeks
b) will finish their purchases sooner than the end of October
c) purchase more than 300 billion total.

I'm guessing "c" is the correct answer and that they will taper down about a billion a week (8 7 6 5 4 3 2 1) and overshoot by 25 billion. That's a rounding error.

With $700 billion of purchases left in the MBS and agency debt markets, does it really matter that they are ending treasury purchases anyway? The MBS is a lot bigger deal, since that will be harder to get off their balance sheet without losses. We will see, but no matter how you count it, we are past the halfway mark on the intended Fed purchases.

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