Size of Federal Reserve's balance sheet 2007-2024
The value of the Federal Reserve's balance sheet increased significantly overall between 2007 and 2024, with a slight decline toward the end of 2023 and into 2024. At the end of 2007, the Federal Reserve's balance sheet stood at roughly 0.9 trillion U.S. dollars. As of September 4, 2024, the Federal Reserve held approximately 7.11 trillion U.S. dollars in assets. The sharpest increases occurred in 2008 and the first half of 2020. These can be attributed to two major events: the 2008 financial crisis and the COVID-19 pandemic, both of which resulted in negative annual growth of the real gross domestic product (GDP) of the United States. In response, the Federal Reserve adopted expansionary monetary policies to stimulate employment and economic growth.
What is an expansionary monetary policy?
Central banks implement expansionary monetary policies to increase the amount of money circulating in the economy. This can be achieved through several methods. For example, central banks can lower interest rates to reduce the cost of borrowing for consumers and businesses. In line with this, the Federal Reserve sharply lowered the U.S. federal funds effective rate between February and March 2020. Additionally, central banks can reduce the minimum reserve requirements for commercial banks, enabling them to issue more loans. Finally, they can conduct open market operations (OMO), purchasing securities such as government bonds from commercial banks or institutions. As a result of the Federal Reserve's purchase of government bonds, the public debt of the United States increased considerably between 2019 and 2020.
Are expansionary monetary policies always successful?
Expansionary monetary policies are effective only if commercial banks are willing to grant loans and potential borrowers are prepared to take on the associated risks. While central banks can impose minimum reserve requirements on commercial banks, they cannot enforce a maximum reserve limit. As a result, expansionary policies may increase the reserves held by commercial banks without necessarily increasing the amount of money circulating in the economy. Additionally, expanding the money supply tends to drive inflation higher, which can destabilize the economy and erode purchasing power. For example, following the Federal Reserve's quantitative easing (QE) in 2020, the inflation rate in the United States reached eight percent in 2022, the highest value since 1991.