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This week's Fed balance sheet report

This week the balance sheet increased by 3 billion.

U.S. Treasury securities (USTS) decreased by 12 billion.

Mortage-backed securities (MBS) increased by 16 billion.

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Questions

Open market operations affect the effective federal funds rate (EFFR).

  • Purchases produce downward pressure on the EFFR
  • Sells produce upward pressure on the EFFR

If we only look at the total balance sheet change (+3 billion), this would imply slight downward pressure on the EFFR.

However, the USTS actually decreased 12 billion.

Do changes in the USTS balance have more of an effect on the EFFR than do MBS balance changes?

Or do they affect the EFFR equally?

So for example, if the EFFR is more sensitive to USTS changes, then perhaps we could actually interpret this week's data as having an upward pressure on the EFFR.

In other words: when considering the effect on the EFFR, is the total balance sheet change all that is needed to be considered? Or is the USTS balance more important than the MBS balance?

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    $\begingroup$ EFFR is based on transactions in the Federal Funds Market, which is an overnight market between banks (and the Fed). Purchases of Treasuries, especially longer term ones, do not necessarily have direct effects on EFFR. Same for MBS securities. $\endgroup$
    – fes
    Jul 24, 2022 at 14:50

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