Fed balance sheet hits record as Powell says there is no limit to lending power
The Federal Reserve’s balance sheet expanded to a record $5.3 trillion in the week ended March 25 from $4.7 trillion in the prior week, the central bank said Thursday.
The Fed’s balance sheet is expected to continue to expand as the central bank steps in to try to keep credit flowing in all corners of the financial market, including Treasurys, commercial paper and municipal bonds. Much of this increase was driven by the Fed’s open-ended buying of U.S. government bonds.
In an NBC News interview aired Thursday on “The Today Show,” Fed Chairman Jerome Powell said there was essentially no limit to the Fed’s emergency lending ability.
“We can continue to make loans, and the point of all that is to support the flow of credit in the economy to households and businesses,” he said.
The Fed is only limited by how much backstop it gets from the Treasury Department.
“We’re required to get full security for our loans so we don’t lose money,” he said.
Two of the Fed’s emergency lending programs made an appearance on the Fed’s balance sheet for the first time: the primary dealer credit facility and the money market mutual fund liquidity facility. They added to $58.4 billion to the Fed’s portfolio.
The first program is intended to extend loans to the 24 primary dealers that act as middlemen in the bond market and facilitate trading. In recent weeks, this select community has been unwilling to buy and sell securities amid the surge in volatility and dislocations in even liquid markets, like those for U.S. government bonds.
Meanwhile, the money-market lending program allows cash-hungry firms to borrow from the commercial paper market — a source of short-term funds for highly rated corporations — at a guaranteed rate. The commercial paper market helps businesses finance payrolls and other cash needs.
Bank borrowing at the Fed’s “discount window” also jumped to more than $50.7 billion.
Fed officials have encouraged banks to tap the discount window as part of efforts to de-stigmatize the facility, in the hopes that financial institutions will use the borrowed funds to increase the flow of credit in the economy.
Swap lines offering dollars to other central bank counterparts, like the Bank of Japan, showed significant use, contributing to $206 billion of the increase in the Fed’s balance sheet.
U.S. equity markets rose Thursday for the third straight day on optimism that the Senate’s coronavirus relief measure might soon be signed into law, allowing more government funds to help troubled businesses and workers. The Dow Industrial Average DJIA, +6.38% rose 1,351 points to close at 22,552.17.