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QE Takes Spotlight While Fed Balance Sheet Hits A New Record

Balance Sheet
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EDITOR NOTE: A consequential and far-reaching event just took place this week under everyone’s noses, and hardly anyone made a fuss about it. The Federal Reserve’s balance sheet just inched-up to $7.18 Trillion on Wednesday. Considering our economic circumstances, everything points to the likelihood that more asset purchases lay ahead. Remember that, in one way or another, these purchases are a claim on your future earnings. Your longer-term purchasing power is negatively affected by balance sheet expansion, and the only way to preserve the value of your cash is to hedge it with gold and silver. Otherwise, you’re stuck with dwindling dollar values--the cost you pay tomorrow for saving the economy today.

The Federal Reserve’s balance sheet inched up to a record $7.18 trillion as of Wednesday, with all signs pointing to further growth in the central bank’s portfolio.

The Fed’s outright holdings of U.S. Treasuries and mortgage-backed securities added about $25 billion to $6.56 trillion over the last week.

Concerns over a slowing economic recovery have pushed the Fed to open the possibility of further ramping up its asset purchases or changing the targets of its asset purchases.

“There is still quite a bit of flexibility in the asset-purchase side right now, and it allows us flexibility to also provide more accommodation if that's necessary,” Chicago Fed President Charles Evans told Yahoo Finance October 9.

In the early months of the pandemic, the central bank quickly added $3 trillion in asset holdings as policymakers attempted to flood financial markets with liquidity. The Fed also stood up 13 facilities to backstop markets ranging from corporate debt to municipal bonds.

The Fed’s quantitative easing leveled off into the fall as markets appeared to regain calm.

“Public markets are out there and they’re working and the pricing is pretty good,” Fed Chairman Jerome Powell told Congress on September 24.

In its September 16 policy-setting meeting, the Federal Open Market Committee began pinning asset purchases to more than keeping financial markets calm. Its statement now commits to using quantitative easing to “maintain an accommodative stance of monetary policy,” setting the stage for larger or more targeted purchases in the future.

Larger quantitative easing would constitute purchases at a rate faster than its current clip of $80 billion-per-month in Treasuries and $40 billion-per-month in mortgage-backed securities.

More targeted purchases would involve a skew in bond buys toward longer-duration debt.

The Fed’s next policy-setting meeting is scheduled to take place right after the election, on November 4 and 5.

Originally posted on Yahoo! Finance

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