Posted on June - 28 - 2011
Excess reserves grow at breakneck speed
Federal Reserve Balance Sheet
Excess reserves grow at breakneck speed
Rampant growth of excess reserved continued over the past two months. Total adjusted excess reserves at depository institutions increased $177bn since 4 May and are up $600bn since the beginning of the year. At its present rate, excess reserves will be double that of its year-end level by October 2011. This pace of growth and the aggregate size of excess reserves will represent a severe challenge to the Federal Reserves’ future attempts to normalize the balance sheet. This month we are nearing the end of the large-scale asset purchase program, but so far reinvestment of retiring principal will continue, according to official Federal Reserve statements. Holdings of mortgagebacked securities are down $74.8bn since the beginning of the year. Holdings of government Treasury securities have increased by $721bn since the commencement of asset purchases on 10 November 2010 and are up $545bn since the start of the year.
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