The Economic Perspective: “Trends in the Fed’s Portfolio”

This is Mary Walden with economist MW, welcoming you to the economic perspective. Today’s
program looks at trends in the Fed’s portfolio. Mike, the Federal Reserve – or “Fed” – is the central bank of the country. Like most banks, it has an investment fund. However, unlike regular banks, it has the ability to alter its investment fund almost at will. How has the Fed’s investment fund recently changed?

a. Prior to the Great Recession in 2008 and 2009, the Fed had a fund – or portfolio- of just under $1
trillion – composed mostly of US government securities
b. In order to support the financial markets during and immediately after the recession, the Fed
increased the fund to $4.5 trillion, and bought mortgages and other investments
c. In 2015 it started to reduce that portfolio
d. Effect of selling those assets is to put upward pressure on interest rates, which the Fed want to rise
e. Portfolio is down to $4 trillion, and most thought it would go lower
f. But at least meeting, Fed said it would stop reducing portfolio later this year
g. Impact – another sign the Fed may be pausing on raising interest rates
h. I’m MW

Mary: And I’m Mary Walden for the Economic Perspective, an NC State Extension program from the
Department of Agricultural and Resource Economics.