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How the Fed Props Up an Overheated Housing Market in Three Pictures

A deep dive into changes in the Fed's balance sheet show it is purposely goosing housing.
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Fed's Balance Sheet Composition Major Categories 2021-09-22

According to the Federal Reserve Statistical Release are about $8.5 trillion factoring in reverse repos (a subtraction). 

Recall that the Fed has been adding $120 billion a month in QE to its balance sheet. $80 billion of that is treasuries and $40 billion is mortgage related.

Via Reverse Repos, the Fed has lopped about $1.3 billion from its balance sheet as of September 22.

Key Items - Millions of Dollars

  • US Treasuries: $5,434,876
  • Mortgage Backed Securities: $2,558,958
  • Reverse Repos $1,359,680

Fed's Balance Sheet by Duration

Fed's Balance Sheet by Duration 2021-09-22

Inclusions and Exclusions

  • The above chart shows time-sensitive assets only. 
  • "All" includes minor loan balances that are time sensitive but not shown in other charts above.
  • The chart does not include other Fed assets such as foreign currency swaps, gold, and non-time denominated assets. 

Changes in the Fed's Balance Sheet by Duration

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Fed's Balance Sheet by Duration Weekliy Change 2021-09-22

That is the key chart in the series. It compares September 15 to September 22.

Importantly, in a single week the Fed added $22 billion in mortgage backed securities, nearly all of which had a duration of 10 years or longer. 

This is an ongoing process despite major subtractions via reverse repos.

In the process, the Fed gooses housing by extending the duration of the assets it does hold, effectively lowering long-term interest rates in the process.

The above charts sho changes from September 15 to September 22. There will be new numbers out later today and I will take another look at Wednesday-to-Wednesday changes. 

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