What's the Fed Been Up to?

The Fed's balance sheet is in a constant state of flux these days. There have been two key changes since the peak of excess reserves in mid-May. Below is the Fed's most recent balance sheet, as well as the balance sheet for May 20.

First, the Fed has been withdrawing term auction credit, which the banks were putting back on deposit with the Fed as excess reserves. That change is in red. It has no effect on the money supply or the real economy.

Second, they've reduced the sizes of swap lines with foreign central banks and instead have bought securities outright. They've also shifted some of their operations to buying securities outright. These changes are in green. Overall, the money supply is unchanged, but the policy is quite expansionary. That's because the swap lines are used to take foreign securities out of the market (they are pledged to foreign central banks by foreign banks in exchange for dollar funding), while the securities the Fed is buying instead are US Government and Agency securities. So even though the total monetary base hasn't changed much, this still represents a significant credit expansion.