*The Federal Reserve buys and sells securities and sets interest rates to influence: borrowing costs, lending activity, price stability, and productivity, with varying effects.*
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I also share this weekly update as a [thread on Twitter](https://twitter.com/ValuablOfficial/status/1583444727663239168) if you prefer that
**Latest data:** October 19th 2022
**TLDR:** Last week, the Fed trimmed $9.3bn net from its Treasury security holdings and added $1.4bn net to its mortgage-backed security holdings. The total amount of Reserve Bank credit shrank by $4.2bn net.
* The 10-year Treasury yield rose by 23bp to 4.14%
* The 30-year fixed-rate mortgage rose by 26bp to 6.92%
* The market expects the federal funds rate to hit 4.5–4.75% by year-end
•••
# 1. The Federal Reserve buys and sells securities
https://preview.redd.it/drof2srxmev91.png?width=1300&format=png&auto=webp&s=bec2d9985efab850abdf53670a8c8aff7d780aab
# 2. And sets interest rates
https://preview.redd.it/mlp1jpsymev91.png?width=900&format=png&auto=webp&s=602689eeb8cf08686550696857b83b1acd72e63d
# 3. To influence: borrowing costs
https://preview.redd.it/77ufjdqzmev91.png?width=900&format=png&auto=webp&s=5954b43fa448d17d147a6660d79a5a343c5e844a
https://preview.redd.it/8gyhbor0nev91.png?width=900&format=png&auto=webp&s=42a0355062df2f7120c220134cc883c31e824948
# 4. Lending activity
https://preview.redd.it/z7thw4v1nev91.png?width=1300&format=png&auto=webp&s=f04b42abaa86d46dfd50c6e0384831d29135a23f
# 5. Price stability
https://preview.redd.it/h2olpxs2nev91.png?width=1300&format=png&auto=webp&s=12bdec03c56fbc198f57bec4e06d6c2e665834a6
# 6. And productivity
https://preview.redd.it/s4f0uvf3nev91.png?width=1300&format=png&auto=webp&s=c0952e3fb7a2914e3b1b7a45d1e1d96bec6bfd35
# 7. With varying effects
https://preview.redd.it/uijyhe84nev91.png?width=900&format=png&auto=webp&s=f7a667f3e0e5d55eb4f6d1a22bb269428d25bd8f
https://preview.redd.it/zqd1mzu4nev91.png?width=900&format=png&auto=webp&s=f08814f06a1fe92f45b0f876eed4effa521d4bda
•••
# Why is this gobbledygook relevant?
The Federal Reserve creates money and uses it to buy bonds. They do this to push interest rates down and to put more money into the economy. Low rates mean people can borrow more, spend more, and afford higher prices. More spending and higher prices mean people feel rich, and businesses hire new employees.
But, if prices rise too quickly or people borrow too much, the Fed does the opposite. It sells the bonds it has and then destroys the money it receives. These sales push interest rates up and take money out of the economy. Higher rates mean people can’t borrow or spend as much and must pay lower prices. It makes people feel poorer than before, stops them from being able to spend as much, and makes businesses trim employment.
In addition to this, the Fed borrows and lends to banks. If a bank doesn’t have enough money for a day or two, it can borrow from the Fed. If it has too much, it can lend to the Fed. A group of people who work for the Fed, the Federal Open Market Committee (FOMC), decide the interest rate that the Fed will pay for, or demand of, these short-term loans.
The Fed does these because they believe in two objectives: first, a low and stable inflation rate is good for the economy, and second, that minimising unemployment is desirable.
# FAQs
**Why do you look at weekly average balance sheet data instead of the Wednesday level?**
It takes time for asset settlement to occur. The holdings on any given day will fluctuate wildly—especially given that the Fed owns almost $9trn of assets. The weekly average is smoother and more indicative of the monetary policy trend.
# Sources
* Fed balance sheet h.4.1 weekly releases – [federalreserve.gov/releases/h41/](https://www.federalreserve.gov/releases/h41/)
* Raw data – [fred.stlouisfed.org](https://fred.stlouisfed.org/)
* My newsletter – [valuabl.substack.com](https://valuabl.substack.com/)
# Notes
* I will update this data weekly, usually Friday morning British time
* Let me know in the comments if you would like something changed or added
* I also share this weekly update as a [thread on Twitter](https://twitter.com/ValuablOfficial/status/1583444727663239168) if you prefer that
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Excellent summary!
Man, this was some top quality post. If only more of those Forex websites provided such a clear, coherent, context-driven collection of data.
The Feds are trying very gingerly to offload their assets, lest too much might create a massive spike in yields across all maturities, drive USD to stratosphere, and bury all the world in some Wiemar Republic era hyperinflation. Doesn’t seem like they are getting away much with it. They still keep buying back MBSs. Feels like handbreaking the economy every second or two.
I wonder how long will they keep on with this program? Raising rates is the only effective policy tool right now, haven’t really enforced QT yet. I hope CPI for October will at least come just below consensus. That could at least allow markets to end the year with a healthy rally, ready to fall back down all over in 2023 (and finally, officially declare recession without the need of walking on eggshells over semantics).
Why project interest rate cuts by next year ?
Maybe plot the balance sheet changes on a chart? What do you think, everybody likes charts and is used to them.
Love the visuals on your account page.
Thanks for sharing this.