Federal Reserve Chairman Ben Bernanke speaks during a news conference at the Federal Reserve Board in Washington, Wednesday, Dec. 12, 2012, following the Federal Open Market Committee meeting. The Federal Reserve sent its clearest signal to date Wednesday that it will keep interest rates super-low to boost the U.S. economy even after the job market has improved significantly. (AP Photo/Manuel Balce Ceneta)
The central bank’s balance sheet has provided record windfalls to the Treasury.
By Joshua Zumbrun and Jeff Kearns
WASHINGTON • Federal Reserve Chairman Ben Bernanke’s unprecedented bond buying has pushed the Fed’s balance sheet to a record $3 trillion as he shows no sign of softening his effort to bring down unemployment.
The Fed is buying $85 billion of securities every month, using the full force of its balance sheet to stoke the economic recovery. The central bank began $40 billion in monthly purchases of mortgage-backed securities in September and added $45 billion in Treasury securities to that pace this month.
“We’re in uncharted territory,” said Julia Coronado, chief economist for North America at BNP Paribas SA in New York.
The Fed’s assets climbed by $48 billion in the past week to $3.01 trillion as of Wednesday, according to a release from the central bank.
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Fed policy makers have voiced increasing concern that record-low interest rates are overheating markets for assets from farmland to junk bonds, which could heighten risks when they reverse their unprecedented bond purchases.
Yet with unemployment still high almost 3½ years into an economic recovery, Fed officials are expected to affirm their accommodation when they meet in Washington next week.
“You’re hard pressed to find another example in history where the Fed pulled out all the stops to help a recovery along,” said Michael Hanson, senior U.S. economist at Bank of America Corp. in New York. “It’s at least as revolutionary as Paul Volcker coming in and saying we’re going to hike rates until inflation” declines.
The Fed has a dual mandate from Congress to achieve stable prices and maximum employment. Volcker, Fed chairman from 1979 to 1987, pushed interest rates to as high as 22 percent to rein in inflation that was approaching 15 percent. Now Bernanke is focusing Fed policy on the other mandate, aiming to reduce the ranks of the nation’s 12.2 million unemployed workers.
Fed officials have said their $85 billion pace of purchases will continue until the labor market improves “substantially.”
Still, they disagree on how long to continue the buying.
The minutes from the Federal Open Market Committee’s December meeting show that participants were “approximately evenly divided” between those who said the purchases should end around mid-2013 and those who said they should continue longer. Some policy makers are concerned that the size of the Fed’s holdings “could complicate the Committee’s efforts to eventually withdraw monetary policy accommodation,” according to the minutes.
The central bank’s balance sheet has provided record windfalls to the Treasury. After paying its own expenses out of its interest income, the Fed sent the Treasury $88.9 billion last year.