Today's H.4.1. data release Factors Affecting Reserve Balances shows that the Federal Reserve's balance sheet has grown to nearly $6.7 trillion as of May 6, 2020.
Of course this does not come as a surprise.. it was $6.6 trillion a week before, and the Fed has recently implemented facilities for markets including primary dealer credit, money market mutual fund liquidity, paycheck protection program liquidity, and commercial paper funding. But the main driver of the balance sheet increase is Treasury securities, which have increased to $4 trillion [first chart below]. On March 23 the Fed announced that it was directing its Open Market Trading Desk to increase the System Open Market Account holdings of Treasury and agency mortgage-backed securities by "amounts needed to support the smooth functioning of markets" for these securities. The Operational Details page is a good reminder of how big these operations are. For example, in late March (3/19-4/1) the Fed was purchasing nearly $75 billion of Treasury securities every day. This week (5/4-5/8) the Fed plans to purchase $8 billion per day.
To compare to recent deficit projections... If we multiply $75 billion of daily Treasury purchases by the 252 working days in 2020, the Fed was purchasing securities at a rate of $18.9 trillion -- five times higher than the CBO's latest estimate of a $3.7 trillion federal budget deficit for FY2020. I'm not saying $3.7 trillion isn't a big deficit.. but we've shifted to MMT-like financing of the economy very quickly. As Peter Bofinger wrote "now is the hour of Modern Monetary Theory." This pandemic is a huge challenge for our societies and economies. To say nothing of the problems existing before the virus, we now face a massive health threat, potential runaway inflation (for example if we have a resurgence of demand and broken supply chains), and a potential breakdown in social stability if things worsen. But we don't face financial restrictions (This other article of his is helpful too https://www.socialeurope.eu/modern-monetary-theory).
Last note- despite the rapid increase in the Fed's balance sheet, it's probably best to not stress and remember Japan [second chart below]. The Bank of Japan owns 43% of outstanding Japanese government bonds [I think it's closer to 50% now] -- equivalent to the Fed owning ~$9 trillion in Treasury securities. And total assets on the BOJ's balance sheet are greater than Japan's level of GDP.
Chart 1: Federal Reserve assets: US Treasury securities
https://fred.stlouisfed.org/graph/?g=qVbV
Chart 2: Fed total assets / US GDP vs. BoJ total assets / Japan GDP
https://fred.stlouisfed.org/graph/?g=qVbY
Note- these charts go to the last date available. This post was written on May 7, 2020.
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