Reply To: Fed balance sheet


To buy securities, the Fed must either sell other assets or incur liabilities. It has several asset categories it could use and a few liability categories. So, it can buy securities without expanding base money.

For the week Dec. 4-11, Federal Reserve Banks increased their Securities $58,443 million, The Federal Reserve Bank incurred liabilities of $26,149 in Reverse Repurchase Agreements and $29,095 in Deposits. Deposits Held by Depository Institutions (i.e., Commercial Bank Reserves) increased by $30,096. (Table 8)

So the Fed’s purchase of securities of $58 billion was roughly neutral to base money. It expanded bank reserves by $30 billion and contracted them by $26 billion. In its reverse repos, the Fed sells securities to counter parties with an agreement to buy them back.