Federal Reserve Chairman Kevin Warsh has made it clear that he believes the Fed’s balance sheet has gotten far too big.
In fact, one of the five task forces he set up at the central bank to examine and advance monetary policy is focused on the size and impact of the Fed’s ample reserves. It currently sits at around $6.7 trillion, according to the latest weekly balance sheet report.
But it wasn’t always this big.
The Federal Reserve’s balance sheet is basically how the Fed funds itself. Its ledger is made up of what the Fed owns, what it owes, as well as its assets and liabilities.
“Liabilities” in this case is all the money out in the economy. Assets are typically Treasury bonds or loans. And at the end of the day, those assets and liabilities balance out to zero.
Prior to the Great Recession in 2008, the Federal Reserve’s balance sheet sat around $800 billion.
“It used to be so simple,” said Emi Nakamura, an economist at the University of California, Berkeley. “Traditionally it was just, you know, Treasury bills and Treasury notes. It was very boring stuff.”
After the Great Recession, that boring stuff got way more interesting. |