Main Situation of the Federal Reserve's Balance Sheet
To begin with, while looking at the macroeconomic data of the United States, I also checked the situation of the FED's balance sheet. Personally, I believe that there will definitely be a rate cut in June, and the Federal Reserve has basically prepared itself on the balance sheet. You can see the conclusion in the last paragraph. Of course, I am not a financial expert; I am just a businessman. Therefore, my judgment is from a business perspective. The FED, as an institution that sells dollars for a living, is now at a loss. This situation is unsustainable, and the reason for the loss is that interest rates are too high. Let's look at the details below.
The quantitative tightening (QT) over the past 18 months has gradually compressed the Federal Reserve's balance sheet from a peak of about $9 trillion in 2022 to $6.73 trillion (as of Wednesday, April 16, 2025), of which about 95% of the assets are still long-term securities (U.S. Treasury bonds and agency MBS). The latest H.4.1 weekly report shows that the asset side is mainly structured in three layers: "Securities - Monetary Policy Tools - Liquidity Tools," while the liability side is centered on four categories: "Currency Issuance - Bank Reserves - RRP - Fiscal Deposits." The following sections will elaborate on assets, liabilities, trends, and policies.
1 Asset Overview
| Asset Item | Balance (Billion USD) | Share of Total Assets | Weekly Change | Annual Change * | Main Content |
|---|---|---|---|---|---|
| Total Securities | 6,408.5 | 95.3% | ‑0.4 | ‑540.6 | Composed of the following three items Home |
| • U.S. Treasury Bonds | 4,217.3 | 62.7% | ‑0.3 | ‑341.2 | Bills 195B, Nominal Bills/Bonds 3,601B, TIPS 312B, Inflation Compensation 108B |
| • Agency MBS | 2,188.9 | 32.5% | ‑0.05 | ‑199.3 | MBS guaranteed by Fannie Mae / Freddie Mac / GNMA |
| • Agency Bonds | 2.35 | ‹0.1% | 0 | 0 | Only two old debts remain |
| Net Premium/Discount Value | 218.6 | 3.2% | ‑0.3 | ‑26.7 | Net amount of purchase price - face value amortization Home |
| Repurchase Agreements (Repo) | 0.003 | ‹0.01% | +0.7 | +0.7 | Only a small amount of external demand remains Home |
| Loans | 4.54 | 0.07% | +0.4 | -130.2 | The main components are Discount Window (2.71B) and PPPLF Residual (1.82B); BTFP settled this week at 0 Home Home |
| Main Street Program | 7.06 | 0.10% | -0.06 | -7.38 | Remaining assets from pandemic emergency tools Home |
| Foreign Exchange Reserve Assets | 19.32 | 0.29% | +0.49 | +1.44 | Mainly euro, yen, and pound swap positions Home |
| Gold Reserves | 11.04 | 0.16% | 0 | 0 | Nominal price of 42.22 USD/ounce since 1934 Home |
| Other Assets | 41.18 | 0.61% | +2.83 | -1.68 | Including accrued interest, fixed assets, etc. Home |
| Total Assets | 6,727.1 | 100% | -0.30 | -678.4 | Consolidated statement (Table 5) Home |
\* Annual changes refer to comparisons with the same period in 2024.
Key Points of Asset Structure
Long-term securities account for > 95%: The duration of Treasury bonds + MBS is concentrated in the > 5-year range, achieved through non-renewal at maturity (Treasury) and passive reinvestment limits (MBS 35B/month). Home
Liquidity tools nearly exited: BTFP balance has returned to zero; the discount window balance remains low, indicating overall ample liquidity in the banking system. Home Home
2 Liability Overview (Quick View)
| Liability Item | Balance (Billion USD) | Description |
|---|---|---|
| Currency in circulation (FR Notes) | 2,377.96 | Accounts for about 36% of liabilities Home |
| Bank reserves | 3,280.85 | Proportion increased during QT, still the anchor of system liquidity Home |
| Overnight reverse repurchase (ON RRP) | 412.43 | Down over 80% from peak of 2.2 trillion Home FRED |
| Treasury General Account (TGA) | 638.78 | Treasury cash management tool Home |
| Other deposits/payables | 236.13 | Includes GSE, FMU deposits, etc. Home |
| Capital | 44.23 | Legal 6% Shareholder Capital & Surplus Home |
3 Scale and Trends
Peak → Current Value: Reduced from approximately 8,999B in 2022 to 6,727B, with QT cumulatively shrinking by about 2.27 trillion USD. FRED Reuters
Adjustment of Operating Rhythm: The FOMC's March 2025 meeting decided to reduce the Treasury reinvestment cap from 25B to 5B, while maintaining the MBS cap at 35B, to continue QT in a "smoother" manner. Reuters
Rapid Contraction of ON RRP alleviated the pressure of declining reserves in the banking system and is an important reference indicator for determining the pace of QT. FRED Reuters
4 Policy Implications and Risk Observations
Liquidity and Interest Rates
Reserves vs RRP: When RRP balances fall to the 300-500B range and reserves approach 2.8-3.0T, the market generally expects QT to be close to the "technical lower limit." [Reuters](https://www.reuters.com/markets/us/ny-fed-survey-shows-big-banks-still-expect-spring-stop-balance-sheet-drawdown-2024-10-10/? utm_source=chatgpt.com)
Liability Reallocation: The ebb and flow between TGA and RRP creates fluctuations in money market rates, and the Federal Reserve needs to finely adjust the corridor between RRP rates (ON RRP) and IOER.
Duration and Reinvestment on the Asset Side
Extended MBS Duration: Rising interest rates have slowed prepayment speeds, with MBS naturally maturing at less than 35 billion per month, and the actual reduction in QT being below the upper limit.
Cross-Period Peak of Treasury Reinvestment: With a large amount of TIPS and bills maturing in 2025-26, reinvestment and redemption arrangements will be key to the progress of QT.
Conclusion
The Federal Reserve's latest balance sheet is $6.73 trillion, with $4.22 trillion in Treasuries and $2.19 trillion in MBS, accounting for an overwhelming majority, while liquidity tools and pandemic relief balances have almost exited.
On the liability side, bank reserves (3.28 trillion) and currency circulation (2.38 trillion) are predominant, with ON RRP decreasing to 0.41 trillion.
QT has shrunk assets by over $2.2 trillion; the subsequent pace will depend on reserve abundance and the natural depletion rate of RRP, with the FOMC having already slowed the Treasury shrinkage limit in March
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