US Federal Reserve Ends QE4 as Businesses Re-close in Largest US States

(8 July 2020)  The US Federal Reserve's balance sheet has fallen for the third week running, down last week by another $73 billion, effectively signaling the end the Fed's fourth round of quantitative easing. The fall goes against market concerns that the Fed's balance sheet continuously increase in coming months, and potentially years, but also raises questions about whether it was premature at could negatively affect markets given that business in many of the largest US states are closing again as COVID-19 cases resurge.

• The $73 billion decrease in total assets was powered by a $32 billion week-on-week plunge in mortgage backed securities (MBS) as well as sharp decreases in foreign central bank liquidity swaps and repo balances. The junk-bond and ETF buying program also stalled.
• The overall weekly change also reflects a decrease of $9 billion in repurchase agreements and a decrease of $49.5 billion in Central Bank liquidity swaps.
• The Fed decreasing its liquidity program for Central Banks is positive news in the sense that it suggests Central Banks are not in urgent need of liquidity and global markets have stabilized.