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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.
As of October 21, 2020, the Federal Reserve has a portfolio totaling $7.2 trillion in assets, an increase of $2.5 trillion from the $4.7 trillion total on March 18. Longer-term nominal Treasury notes and bonds (excluding inflation-indexed notes and bonds) comprise about two-thirds of that expansion, with holdings of those two types of securities increasing from roughly $2.2 trillion on March 18 to $3.8 trillion on October 21 — or a 79 percent increase.
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 (known as the Great Recession). 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 mitigate the economic fallout from 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.
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