federal reserve bank of philadelphia · 7/20/2012 · 1 federal reserve bank of philadelphia...

1

FEDERAL RESERVE BANK

OF PHILADELPHIA

Report on Economic and Financial Developments

Loretta J. Mester

Executive Vice President and Director of Research

July 20, 2012

*The views expressed here are those of the author and do not necessarily reflect those of the Federal Reserve Bank of Philadelphia or of the Federal Reserve System.

FEDERAL RESERVE BANKOF PHILADELPHIA

Executive summary

• Economic growth slowed in the second quarter in both the nation and the district

• Downside risks include:

– European sovereign debt & banking system problems

– U.S. fiscal situation looming at year-end

– Slower global growth

• Several central banks have taken further steps to try to boost growth

• Policy questions:

– Has the outlook changed enough to warrant further action?

– If so, what action?

2


-1000

-800

-600

-400

-200

0

200

400

600Thousands of jobs Monthly change in nonfarm payrolls

2006 2007 2008 2009 2010 2011 2012

80

Last month plotted is June 2012Average monthly gains for each year are indicated by the grey lines

Employment growth has weakened since the start of the year.In June, payrolls rose by 80 thousand jobs.

Average monthly job gains this year are no higher than last year.


225

677

-2400

-2200

-2000

-1800

-1600

-1400

-1200

-1000

-800

-600

-400

-200

0

200

400

600

800Thousands of jobs Quarterly change in nonfarm payrolls

2009 2010 2011 2012

Last month plotted is 2012 Q2Source: Bureau of Labor Statistics

Quarterly job gains in the second quarter were only 1/3 of what they were in the first quarter

3


3

4

5

6

7

8

9

10

11

92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

Civilian unemployment rate Percent

US

Source: Bureau of Labor Statistics and Phila Fed Research Department.Monthly data: Last point plotted is June 2012.

DE

Progress on unemployment has stalled over the past three months.

US: 8.2 (June)PA: 7.5 (June)NJ: 9.6 (June)DE: 6.7 (June)Three States: 8.3 (June)

NJ

PA


Personal income growth has stabilized to a modest 3 percent pace over the past three months

-6

-5

-4

-3

-2

-1

0

1

2

3

4

5

6

7

Jan 07 Jul 07 Jan 08 Jul 08 Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11 Jan 12

Percent

Year-over-year growth in personal income and real disposable income

(3-month moving average)

Monthly data: Last point plotted is May 2012

4


-12

-8

-4

0

4

8

12

05 06 07 08 09 10 11 12

Retail sales growth moderated in June

Year-over-year growth in retail sales, excluding autos,gas stations, and building materials stores

Percent

Year-over-year growth in nominal retail sales

Monthly data: Last point plotted is June 2012

Year-over-year growth in real retail sales


-50

-40

-30

-20

-10

0

10

20

30

40

50

60

70

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Regional manufacturing activity has slowed over the past three months,similar to last summer

Index represents percentage of respondents reporting an increase minus percentage reporting a decrease.Monthly data: Last point plotted is July 2012

Business Outlook Survey: General Activity IndexFuture General Activity Index

-12.3

19.3

Diffusion Index

5


At the national level, manufacturing activity rebounded in June,but its pace stepped down in Q2 compared to Q1

75

80

85

90

95

100

105

00 01 02 03 04 05 06 07 08 09 10 11 12

0

3

6

9

12

15

18

Industrial Production

Index, 2007=100

Manufacturing Output


Motor Vehicle Assemblies(right scale)

SAAR, Mill. Units


Business investment in equipment and software has also softened

-40

-30

-20

-10

0

10

20

30

98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

Shipments

Percent

Orders

Monthly data: Last point plotted is May 2012

Nondefense capital goods excluding aircraftYear-over-year percentage change, SA

6


0

30

60

90

120

150

2007 2008 2009 2010 2011 2012

1.00

2.00

3.00

4.00

5.00

6.00

Oil prices have firmed over the past month, but are down about $14 a barrel since the start of the year.

Gasoline prices remain under $3.50 a gallon.

West Texas Intermediate

$ per barrel oil Spot Prices

Weekly data: Last point plotted is July 13, 2012.

$ per gallon for gasoline

Brent

Retail Gasoline


As oil prices have fallen, inflation has moderated to slightly under the FOMC’s longer-run goal of 2 percent

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Monthly data: Last month plotted is May 2012

Percent

1.5%

Total PCE Inflation and Core PCE Inflation12-month % change

1.8%

7


0

250

500

750

1000

1250

1500

1750

2000

2250

2500

04 05 06 07 08 09 10 11 12

1500

2000

2500

3000

3500

4000

4500

5000

5500

6000

6500Existing single family home sales

Thousands of units

New single family home sales

Thousands of units

There are signs that housing is starting to recover, with sales and starts moving up, albeit from very low levels

Monthly data: Last point plotted is June 2012 for starts and existing home salesand May 2012 for new home sales

Privately owned housing units started


House prices appear to have stabilized and may even be starting to rise

Year-over-year percentage change Percent

Monthly data: Last point plotted is April 2012 for Case-Shiller and FHFAand May 2012 for CoreLogic

-20

-15

-10

-5

0

5

10

15

20

92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

Case-ShillerHouse Price IndexComposite 20

FHFA Purchase-OnlyHouse Price Index

CoreLogicExcluding Distressed Sales

8


0

4

8

12

16

20

1/3/11 4/4/11 7/5/11 10/4/11 1/4/12 4/4/12 7/5/12

0

10

20

30

40

50

Uncertainty surrounding the European sovereign debt and banking problems continues to cloud the global outlook,

but European countries have taken some positive stepsPercent

Daily: Last point plotted is July 17, 2012

Ireland

Portugal

Greece(right scale)

Spain

Italy

Spread of 10-year government bondover 10-year German government bond

Percent

France


Stock prices continue to be volatile on concerns about Europe and the global growth slowdown.

The S&P500 is little changed, on net, over the past month,but is up over 8 percent, on net, year-to-date.

1000

1200

1400

1600

1800

2000

2200

2400

2600

2800

3000

3200

8 Jan 10 25 Jun 10 10 Dec 10 27 May 11 11 Nov 11 27 Apr 12

9000

9500

10000

10500

11000

11500

12000

12500

13000

13500

14000

14500

Dow JonesNASDAQ &S&P 500

Dow Jones Industrials

NASDAQ

Daily data: Last point plotted is July 18, 2012

S&P 500

9


0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

Jan 07 Jul 07 Jan 08 Jul 08 Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11 Jan 12 Jul 12

Interest rates are very low across the maturity spectrum.Longer-term interest rates have fallen as investors

seek the safe haven of U.S. Treasury securities.The Fed has kept the fed funds rate at essentially zero for 3-1/2 years.

Percent

Weekly data: Last point plotted is July 12, 2012

10-year Treasury bond yield

30-year mortgage rate

Fed funds effective rate


0.0

1.0

2.0

3.0

4.0

5.0

6.0


Calculation of LIBOR has come under increased scrutiny

Percent


Overnight LIBOR rate

Fed funds effective rate

In September 2008, the Fed announced new and expanded swap lines with other central banks to alleviate pressures in dollar short-term funding markets

10


What is LIBOR?

• LIBOR = London Interbank Offered Rate

• “At what rate could you borrow funds, were you to do so by askingfor and then accepting interbank offers in a reasonable market size just prior to 11 am London time?”

– Not based on actual transactions

– Rates for 10 currencies and 15 maturities

• British Bankers Association collects responses from 18 banks; Thompson Reuters calculates the trimmed arithmetic mean

– 3 US banks: Bank of America, Citigroup, JP Morgan Chase

• Used as a reference rate in a variety of financial contracts including swaps, commercial loans, mortgages, student loans

– In the US, mortgages tied to LIBOR:

• 6% of number of 1st mortgages = 3 million loans

• 9% of outstanding principle of 1st mortgages = $800 billion


Central banks around the world have been easing monetary policy

• Fed

– Extended operation twist to year-end

• China, Brazil, South Korea, Australia, Denmark

– Cut policy rates

• Japan:

– Increased Treasury bill purchases under Asset Purchase Program

• ECB

– Cut central bank lending and deposit rates

• United Kingdom

– Increased asset purchases

– “Funding for Lending Scheme” – low-cost funding to banks that increase lending to households and firms

11


-6-5-4-3-2-1012345

Euro Area Japan UnitedKingdom

United States

Growth is expected to be modest in many countries over the next two years

China

0

2

4

6

8

10

12

14

16

Real GDP Growth, SAAR

Percent

Source: OECD Economic Outlook, May 2012 for China and June 2012 for others.Hatched bars are forecasts.

07 08 09 10 11 12 13 07 08 09 10 11 12 13 07 08 09 10 11 12 13 07 08 09 10 11 12 13

07 08 09 10 11 12 13

Percent


The fiscal cliff is a risk to the forecast

$ billions % of FY13 GDP

Changes in Revenue Policies

399 2.5%

Expiration of tax provisions and adjustments to AMT 221 1.4% Expiration of employee’s payroll tax reduction 95 0.6% Other expiring provisions 65 0.4% Taxes included in Affordable Care Act 18 0.1%

Changes in Spending Policies

103 0.6%

Automatic sequestration 65 0.4% Expiration of emergency unemployment benefits 26 0.2% Reduction in Medicare payment rates for doctors 11 0.1%

Other Changes in Revenues and Spending

105 0.7%

Total Change in Deficit (without economic feedback effects)

607

3.8%

Source: Congressional Budget Office, May 2012

12


0.00

0.25

0.50

0.75

1.00

Jan 2012 Jul 2012 Jan 2013 Jul 2013 Jan 2014 Jul 2014 Jan 2015

Percent30-day federal funds futures rates

Jan 19, 2012

July 18, 2012

Market participants continue to price in more accommodative policygiven the weaker economic data

April 26, 2012

June 20, 2012


13


Appendix: Additional Charts


Economic activity continues to expand in most states,but at a slower pace than earlier this year

> 4%3% to 4%2% to 3%0.5% to 2%-0.5% to 0.5%-2% to -0.5%-3% to -2%<-3%

Philadelphia Fed Current Economic Activity Indexes, annualized growth over the three months ending in May 2012

14


-1000

-800

-600

-400

-200

0

200

400

Thousands of jobs Monthly change in private nonfarm payrolls

2006 2007 2008 2009 2010 2011 2012

84

Last month plotted is June 2012.Average monthly gains for each year are indicated by the grey lines.

Private sector payroll growth has slowed in recent months


0

1

2

3

4

5

6

7

8

US PA NJ DE

% oflost jobs regained

Percent

% of jobs lost from employment peak to employment trough and % of lost jobs regained since employment trough

6.4%

43.8%

4.4%

26.9%

6.3%

7.8%

% of jobs lost

56.2% 27.6%

Incorporates June 2012 data for US and May 2012 data for states

Recent modest job growth has retarded progresson recovering lost jobs

15


1

2

3 4

5

6

7

8

9

10

11

12

13

14

15

16 17

18

19

20

21

2223

24

Employment in our three statesdecelerated since the beginning of the year

1. Pittsburgh, 2. Erie, 3. Johnstown, 4. Altoona, 5. State College, 6. Williamsport, 7. Harrisburg-Carlisle, 8. York-Hanover, 9. Lebanon, 10. Lancaster, 11. Reading, 12. Scranton-Wilkes-Barre, 13. Allentown-Bethlehem-Easton, 14. Newark-Union, 15. Bergen-Passaic-Hudson, 16. Trenton-Ewing, 17. Edison, 18. Philadelphia, 19. Camden, 20. Wilmington, 21. Dover, 22. Vineland-Millville-Bridgeton, 23. Atlantic City, 24. Ocean City

Annualized 3-month payroll job growth, as of May 2012

< 3%

2.9% to 2%

1.9% to 1% 0.9% to 0%

0.1% to 1%

1.1% to 2%> 2%

Job growthann. 3-monthas of May 2012

US: 0.9%3-state: 0.3% PA: 0.5%NJ: 1.8%DE: 3.2%


1

2

3 4

5

6

7

8

9

10

11

12

13

14

15

16 17

18

19

20

21

2223

24

Employment growth in our three states is lower than in the nation. So far this year, job growth in NJ has offset weakness in PA and DE.

1. Pittsburgh, 2. Erie, 3. Johnstown, 4. Altoona, 5. State College, 6. Williamsport, 7. Harrisburg-Carlisle, 8. York-Hanover, 9. Lebanon, 10. Lancaster, 11. Reading, 12. Scranton-Wilkes-Barre, 13. Allentown-Bethlehem-Easton, 14. Newark-Union, 15. Bergen-Passaic-Hudson, 16. Trenton-Ewing, 17. Edison, 18. Philadelphia, 19. Camden, 20. Wilmington, 21. Dover, 22. Vineland-Millville-Bridgeton, 23. Atlantic City, 24. Ocean City

Annualized year-to-date payroll job growth, as of May 2012

< 3%

2.9% to 2%

1.9% to 1% 0.9% to 0%

0.1% to 1%

1.1% to 2%> 2%

Job growthann. yr-to-dateas of May 2012

US: 1.5%3-state: 0.8% PA: 0.0%NJ: 2.1%DE: 0.1%

16


-25

-20

-15

-10

-5

0

5

10

15

1995 1997 1999 2001 2003 2005 2007 2009 2011

-$15

-$12

-$9

-$6

-$3

$0

$3

$6

$9

Percent

Household net worth is beginning to recover after the sharp contraction in 2008

Source: FRB Flow of Funds, annual data for 1995-2011; quarterly data for 2012Q1

Change in household net worth Trillions of $

$ Change

Percentage change,year to year

2012Q1


-4

-2

0

2

4

6

8

10

-12 -8 -4 0 4 8 12 16 20 24 28 32 36 40

2001

Private sector job growth in the U.S. is slowing comparedwith the 1991 “jobless” recovery.

And this recession was much sharper.

Cumulative % change in private nonfarm payrolls since recession trough

2009

1991Avg of 8 recoveries,1949-1982

Months Since Recovery BeganTroughMar 1991Nov 2001Jun 2009

U.S. private payroll employment

Last point plottedfor 2009 recovery is June 2012

17


-4

-2

0

2

4

6

8

10

-12 -8 -4 0 4 8 12 16 20 24 28 32 36 40

2001

Unlike prior recessions, government jobs are being cut

Cumulative % change in government nonfarm payrolls since recession trough

2009

1991

Avg of 8 recoveries,1949-1982


U.S. government payroll employment

Census workers =>+410K in May 2010



-4

-2

0

2

4

6

8

10

-12 -8 -4 0 4 8 12 16 20 24 28 32 36 40

2001

Total employment growth in the nation is weaker than in the 1991 recovery

Cumulative % change in nonfarm payrolls since recession trough

20091991

Avg of 8 recoveries,1949-1982


U.S. payroll employment


18


Elk

Erie

Tioga

York

Potter

Centre

Berks

Bradford

Butler

PikeLycomingClinton

Kent

Bedford

Clearfield

McKean

Blair

Indiana

Crawford

Luzerne

Wayne

Fayette

PerryBucks

LancasterChester

Franklin Ocean

Clarion

Schuylkill

Sussex

Monroe

Cambria

Burlington

Warren

Somerset

Morris

Venango

Greene

Huntingdon

Adams

Allegheny

Washington

Jefferson

Atlantic

Westmoreland

Mifflin

Forest

Fulton

Armstrong

Dauphin

Beaver

Susquehanna

Mercer

Sullivan

Salem

Juniata

CarbonColumbia

Lehigh

Sussex

Snyder

CameronWyoming

Monmouth

Lebanon

Hunterdon

New Castle

Montgomery

Lawrence

Lackawanna

Bergen

Cumberland

WarrenUnion

Cumberland

Middlesex

Gloucester

NorthamptonNorthumberland

Camden

Passaic

Somerset

Cape May

Essex

Mercer

Delaware

Montour

Philadelphia

UnionHudson

Unemployment rates vary across the region,with higher rates in southern New Jersey

County Unemployment Rates: May 2012 (Preliminary)

Less than 7.5%

7.5% - 9.0%

9.0% - 11.0%

Greater than 11.0%


The share of unemployment that is long-term remains high

0

10

20

30

40

50

60

70

Jan.71 Jan.78 Jan.85 Jan.92 Jan.99 Jan.06

15 weeks or longer

Percent of Unemployed

27 weeks or longer


19


0.0

1.0

2.0

3.0

4.0

5.0

6.0

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 120

7

14

21

28

35

42Percent

Long-term unemployedas percent of civilian labor force

Long-term unemployment remains high.Progress has stalled in the past two months.

Job losers as percentof civilian labor force

Monthly data: Last point plotted is June 2012.Job losers are people unemployed for less than 5 weeks.Long-term unemployed are people unemployed for more than 26 weeks.

Average weeksunemployed

Weeks


2

4

6

8

10

12

14

16

18

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

Percent

8.2%


The unemployment rate is higher when we include all marginally attached workers

and those working part-time for economic reasons.This rate ticked up in May and June.

14.9%

U3 = Official unemployment rate

U6: Unemployed in U3 plus all marginally attached workers and those working part-time for economic reasons

20

Labor force participation is below the level that would be predicted by cyclical factors and demographics

60

61

62

63

64

65

66

67

68

77Q1 80Q1 83Q1 86Q1 89Q1 92Q1 95Q1 98Q1 01Q1 04Q1 07Q1 10Q1 13Q1

Percent Civilian Labor Force Participation Rate (SA)

Quarterly data: Last point plotted for participation is 2012Q2Source: Bureau of Labor Statistics.Trend is author’s calculation controlling for the unemployment rate, share of working age population over 65, share of working age population female, time, and time-squared.

63.7

Nonlinear trend


Total inflation is down from its peak reflecting the drop in oil prices

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Monthly data: Last month plotted is June 2012

Percent

2.2%

Total CPI Inflation and Core CPI Inflation12-month % change

1.7%

21


Longer-term inflation expectations appear to be well-anchored

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12

Percent

Daily data: Last point plotted is July 13, 2012 for inflation compensationand Second Quarter 2012 SPF for 10-year CPI inflation expectations

10-Year Inflation Compensation from Treasury Inflation-Indexed Securities

Survey of Professional Forecasters Median 10-Year CPI Inflation Expectations

Jan 25: FOMC releases 2% inflation target


20

40

60

80

100

120


Consumer Confidence Index, Conference Board

Sentiment index, 66Q1 = 100Confidence index, 1985 =100

Consumer Sentiment Index,University of Michigan

Consumer sentiment has fallen over the past three monthson uncertainty over the European sovereign debt problems,

the global slowdown, and U.S. fiscal problems looming at year-end

Monthly data: Last point plotted is June 2012 for Confidence andJuly 2012 (preliminary) for Sentiment

22


-$6,000

-$5,000

-$4,000

-$3,000

-$2,000

-$1,000

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

97 98 99 00 01 02 03 04 05 60 70 08 09 10 11 12Q1

Billions of Dollars

The rebound in the stock market contributed to a sizable risein household wealth in the first quarter

Change in households’real estate equity

Change in households’stock and mutual fund holdings

Source: FRB Flow of Funds, annual data for 1997-2011; quarterly data for 2012Q1


Auto production remains strong.Auto sales slowed in the second quarter from the robust first quarter pace.

0

3

6

9

12

15

18

21

24

06 07 08 09 10 11 12

Auto and light truck sales

Millions of Units, Annual Rate

14.0 mill

10.3 mill

Auto and light truck assemblies


23


50

75

100

125

150

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

Household debt-to-disposable income is falling

Debt-to-DisposableIncome

Quarterly data: Last point plotted is 2012 Q1

Percent


14

15

16

17

18

19

20

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

Households’ debt-service burdens are falling.This partly reflects low interest rates.

Quarterly data: Last point plotted is 2012 Q1Source: Federal Reserve Board

PercentTotal financial obligations to disposable personal income*

*Includes payments on mortgage debt, consumer debt, auto leases, rental properties, homeowners insurance, and property taxes.

24


Inventories of unsold homes are down from their peaks

0

2

4

6

8

10

12

14

16

18

00 01 02 03 04 05 06 07 08 09 10 11 12

Months’ supply atcurrent sales pace

Months’ supply ofsingle family homes

Months’ supply of condos and co-ops

Source: National Association of RealtorsMonthly data: Last point plotted is May 2012

6.76.5

1

2

3 4

5

6

7

8

9

10

11

12

13

14

15

16 17

18

19

20

21

2223

24

House prices are firming in the western part of Pennsylvania and the Marcellus shale area

Not ReportedLess than −5%−4% to −5%−2% to −4%−2% to 0%0% to 2%2% to 4%Greater than 4%

Change in FHFA House Price Index For Metro Areas (as of 2012 Q1)

1- Pittsburgh, 2- Erie, 3- Johnstown, 4- Altoona, 5- State College, 6- Williamsport, 7- Harrisburg-Carlisle, 8- York-Hanover, 9- Lebanon, 10- Lancaster,11- Reading, 12- Scranton-Wilkes-Barre, 13- Allentown-Bethlehem-Easton, 14- Newark-Union, 15- Bergen-Passaic-Hudson, 16- Trenton-Ewing, 17- Edison, 18- Philadelphia, 19- Camden, 20- Wilmington, 21- Dover,22- Vineland-Millville-Bridgeton, 23- Atlantic City,24- Ocean City

25


0

1

2

3

4

5

6

7

8

9

10

11

2005Q1 2006Q1 2007Q1 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1

Percent of all mortgages outstanding,1-4 residential units

Past due at least 30 days

Delinquencies continue to move down.Still, one in 13 mortgages is seriously delinquent.

Quarterly data: Last point plotted is 2012Q1Source: Mortgage Bankers Association, seasonally adjusted

New foreclosures

Seriously delinquent: Past due at least 90 days or in foreclosure


Stock prices abroad have recovered a bit as the European countries have agreed on some initiatives to help with the sovereign debt and banking problems

4200

4500

4800

5100

5400

5700

6000

6300

6600

6900

7200

7500

7800

8 Jan 10 5 May 10 30 Aug 10 23 Dec 10 19 Apr 11 12 Aug 11 7 Dec 11 2 Apr 127000

8500

10000

11500

13000

14500

16000

17500

19000

20500

22000

23500

25000

Hong Kong Hang Seng& Japan Nikkei

London FTSE&German DAX

Daily data: Last point plotted is July 18, 2012

GermanDAX London

FTSE

Hong KongHang Seng

Japan Nikkei

26


The value of the dollar continues to rise on safe-haven flows

65

70

75

80

85

90

95

2004 2005 2006 2007 2008 2009 2010 2011 2012

0.5

0.6

0.7

0.8

0.9

1.0

1.1

Trade-weighted value of $ against major currenciesand

Euros per $Index, March 1973 = 100


Euros/US $


-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Jan-07 Nov-07 Sep-08 Jul-09 May-10 Mar-11 Jan-12

-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

The Fed holds nearly $1 trillion in agency mortgage-backed securities and agency debt.

Operation twist continues to lengthen the portfolio’s maturity.By the end of the year, the Fed will hold no short-term Treasury securities.

Trillions $


Treasury securities

Loans

Other assets Agency securities

Trillions $

Assets

Liabilities

Federal Reserve notes in circulation

Reserve BalancesTreasury Supplementary Financing Program

Other Liabilities

27


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