July 21, 2020

The Federal Reserve Holds More Treasury Notes and Bonds than Ever Before

The U.S. Federal Reserve has significantly ramped up its holdings of Treasury securities as part of a broader effort to counteract the economic impact of the coronavirus (COVID-19) pandemic. In fact, measured in dollars, the Federal Reserve currently holds more Treasury notes and bonds than ever before in its history.

Beginning in mid-March 2020, the Federal Reserve initiated an aggressive policy of quantitative easing — which involves the purchase of government securities, corporate bonds, and other financial instruments — with the aim of keeping interest rates low and injecting cash into the economy.

Between March 18 and July 15, 2020, the Federal Reserve expanded its portfolio by $2.3 trillion, rising from $4.7 trillion to $7 trillion in total assets. Longer-term Treasury notes and bonds comprise the lion’s share of that expansion, with holdings of those two types of securities increasing from roughly $2.2 trillion on March 18 to $3.6 trillion on July 15 — or a 68 percent increase.

The Federal Reserve has significantly added to its portfolio of notes and bonds

TWEET THIS

By comparison, the Federal Reserve only increased its holdings of Treasury notes and bonds by $116 billion, or roughly 25 percent, between December 5, 2007 and June 24, 2009, the period of recession associated with the housing and financial crisis. Over that same period, the Federal Reserve expanded its total portfolio from $920 billion in December 2007 to $2.1 trillion in June 2009, a total increase of $1.2 trillion. Much of that increase stemmed from the purchase of mortgage-backed securities and the implementation of new programs to address the economic slowdown.

The Federal Reserve’s purchase of longer-term Treasury securities is part of their efforts to support the economy through quantitative easing. Those purchases inject money into the economy to lower interest rates and, therefore, encourage lending and investment. Such efforts by the Federal Reserve help respond to the pandemic along with spending on safety net programs such as unemployment insurance, as well as programs enacted through the Coronavirus Aid, Relief, and Economic Security (CARES) Act and other legislation that provided aid to sectors of the economy hit hardest by the pandemic.


Related: What Role Has Federal Debt Played in the Response to the COVID-19 Pandemic?


Image credit: Photo by Mark Wilson/Getty Images

 

Understanding the Coronavirus Crisis

Key fiscal and economic indicators as the nation responds and recovers.

National Debt Clock

See the latest numbers and learn more about the causes of our high and rising debt.