The main situation of the Federal Reserve's balance sheet
Foreword: While reviewing US macroeconomic data, I also checked the FED's balance sheet. Personally, I believe a rate cut in June is inevitable, and the Fed has basically prepared its balance sheet for it. See the conclusion in the final section. Of course, I'm not an economist—just a businessman—so my judgment comes from a business perspective: The FED, as an institution that profits from selling dollars, is now operating at a loss. This is unsustainable, and the reason for the loss is simply that interest rates are too high. Details below.
Quantitative tightening (QT) over the past 18 months has gradually reduced the Fed's balance sheet from its 2022 peak of approximately $9 trillion to $6.73 trillion (as of Wednesday, April 16, 2025), with about 95% of assets still in long-term securities (US Treasuries and agency MBS). The latest H.4.1 weekly report shows that assets are primarily structured in three tiers: "Securities—Monetary Policy Tools—Liquidity Tools," while liabilities are dominated by four categories: "Currency in Circulation—Bank Reserves—RRP—Treasury Deposits." The following sections break down assets, liabilities, trends, and policy.
1 Asset Overview
| Asset Item | Balance ($Barrick Mining(B.US)arrick Mining(B.US)) | % of Total Assets | Weekly Change | Annual Change * | Key Components |
|---|---|---|---|---|---|
| Total Securities | 6,408.5 | 95.3% | -0.4 | -540.6 | Comprises the following three items Home |
| • US Treasuries | 4,217.3 | 62.7% | -0.3 | -341.2 | Bills 195B, Par Notes/Bonds 3,601B, TIPS 312B, Inflation Compensation 108B |
| • Agency MBS | 2,188.9 | 32.5% | -0.05 | -199.3 | Fannie Mae / Freddie Mac / GNMA-guaranteed MBS |
| • Agency Bonds | 2.35 | <0.1% | 0 | 0 | Only two legacy bonds remain |
| Net Premium/Discount | 218.6 | 3.2% | -0.3 | -26.7 | Amortized difference between purchase price and face value Home |
| Repo Agreements | 0.003 | <0.01% | +0.7 | +0.7 | Only sporadic external demand Home |
| Loans | 4.54 | 0.07% | +0.4 | -130.2 | Mainly Discount Window (2.71B) and PPPLF Residuals (1.82B); BTFP cleared to 0 this week HomeHome |
| Main Street Program | 7.06 | 0.10% | -0.06 | -7.38 | Legacy assets from pandemic emergency tools Home |
| Foreign Exchange Reserves | 19.32 | 0.29% | +0.49 | +1.44 | Primarily euro, yen, and GBP swap positions Home |
| Gold Reserves | 11.04 | 0.16% | 0 | 0 | Nominal value fixed at $42.22/oz since 1934 Home |
| Other Assets | 41.18 | 0.61% | +2.83 | -1.68 | Includes accrued interest, fixed assets, etc. Home |
| Total Assets | 6,727.1 | 100% | -0.30 | -678.4 | Consolidated statement (Table 5) Home |
* Annual change refers to comparison with the same period in 2024.
Key Asset Structure Observations
Long-Term Securities > 95%: Treasuries + MBS durations are concentrated in the >5-year range. QT is achieved by letting holdings mature without reinvestment (Treasuries) and capping passive MBS reinvestment at $35B/month. Home
Liquidity Tools Nearly Exited: BTFP balance has zeroed out; Discount Window balances remain low, indicating overall ample banking system liquidity. HomeHome
2 Liability Overview (Snapshot)
| Liability Item | Balance ($Barrick Mining(B.US)arrick Mining(B.US)) | Notes |
|---|---|---|
| Currency in Circulation (FR Notes) | 2,377.96 | ~36% of liabilities Home |
| Bank Reserves | 3,280.85 | Rising share during QT, still the system's liquidity anchor Home |
| Overnight Reverse Repo (ON RRP) | 412.43 | Down >80% from peak of $2.2T HomeFRED |
| Treasury General Account (TGA) | 638.78 | Federal cash management tool Home |
| Other Deposits/Payables | 236.13 | Includes GSE, FMU deposits, etc. Home |
| Capital | 44.23 | Statutory 6% member bank capital & surplus Home |
3 Scale and Trends
Peak→Current: Reduced from ~$8.999T in 2022 to $6.727T, with cumulative QT contraction of ~$2.27T. FREDReuters
Pace Adjustment: The March 2025 FOMC meeting decided to lower the Treasury runoff cap from $25B→$5B while maintaining the MBS cap at $35B, continuing QT at a "more gradual" pace. Reuters
ON RRP Rapid Decline has eased pressure on bank reserve reductions, making it a key indicator for QT pacing. FREDReuters
4 Policy Implications and Risk Monitoring
Liquidity and Rates
Reserves vs RRP: When RRP balances fall to the $300-500B range and reserves approach $2.8-3.0T, markets generally expect QT to near its "technical floor." Reuters
Liability Reallocation: The inverse relationship between TGA and RRP creates money market rate volatility, requiring the Fed to finely calibrate the corridor between RRP rates (ON RRP) and IOER.
Asset Duration and Reinvestment
MBS Duration Extension: Higher rates have slowed prepayments, causing natural MBS maturities to fall short of the $35B/month cap, resulting in slower QT progress.
Treasury Reinvestment Peaks: With large TIPS and note maturities in 2025-26, reinvestment/redemption strategies will be critical for QT pacing.
Conclusion
The Fed's latest balance sheet stands at $6.73 trillion, dominated by Treasuries ($4.22T) and MBS ($2.19T), while liquidity tools and pandemic relief balances have nearly exited.
Liabilities are primarily bank reserves ($3.28T) and currency in circulation ($2.38T), with ON RRP declining to $0.41T.
QT has reduced assets by over $2.2T; future pacing will hinge on reserve adequacy and RRP natural depletion, with the FOMC already slowing Treasury runoff in March.
The copyright of this article belongs to the original author/organization.
The views expressed herein are solely those of the author and do not reflect the stance of the platform. The content is intended for investment reference purposes only and shall not be considered as investment advice. Please contact us if you have any questions or suggestions regarding the content services provided by the platform.
