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Why Is the Fed’s Balance Sheet Still So Big?
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Why Is the Fed’s Balance Sheet Still So Big?

Andrew Foerster and Sylvain Leduc
FRBSF, 2019
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Editorial Rating

8

Qualities

  • Analytical
  • For Experts

Recommendation

Federal Reserve officials introduced extraordinary monetary policy measures during the Great Recession and kept at them as the US economy recovered. Most notably, the Fed more than quadrupled the size of its balance sheet. This growth, along with years of low interest rates, provided ample liquidity to markets. In this informative report, economists Andrew Foerster and Sylvain Leduc discuss to what extent the central bank can – or should – reduce its balance sheet. Financial professionals will appreciate this robust examination of Fed policy.

Summary

Federal Reserve officials have massively increased the central bank’s balance sheet since the Great Recession.

Prior to the Great Recession, the Federal Reserve maintained a balance sheet of roughly $870 billion. During the crisis, and as the recovery ensued, Fed leaders hugely expanded the organization’s assets and liabilities to the tune of $3.9 trillion by March 2019. This latest figure represents 18.5% of GDP, while the pre-recession amount accounted for 7%. 

This robust boost to the balance sheet provided banks, corporations, small businesses, consumers and the US Treasury...

About the Authors

Andrew Foerster is a research adviser and Sylvain Leduc is executive vice president and director of economic research at the Federal Reserve Bank of San Francisco.

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