FILE PHOTO: The Federal Reserve Board building on Constitution Avenue is pictured in Washington, USA, on March 19, 2019. REUTERS / Leah Millis
(Reuters) – The massive reserve of bonds and other assets of the US Federal Reserve fell for the third consecutive week to its smallest size since mid-May, data released by the central bank on Thursday showed.
Meanwhile, the central bank has yet to make loans under its two-week-old Main Street line of credit, aimed at extending easy credit to small and medium-sized businesses that can’t get it elsewhere, according to the data.
It is not entirely clear why, in the midst of a deep and abrupt recession, the loans have not generated more interest. When the Fed first proposed it, staff urgently worked to defend it as thousands of letters arrived with suggestions on how to make it more useful. The central bank adjusted its plan in response to many of those suggestions.
But since the onset of the coronavirus crisis, financial conditions have eased, making credit more readily available. That has been largely due to other Fed actions, including a number of other credit and loan facilities, as well as billions of dollars in bond purchases that brought its balance sheet to record size last month.
As of July 1, the total size of the Federal Reserve balance sheet decreased by approximately $ 74 billion to $ 7.06 trillion from $ 7.13 trillion the previous week, led by a decline of approximately $ 50 billion in pending currency swaps with foreign central banks.
That was a fifth consecutive weekly drop and a sign of a weakness in the US dollar contraction that had been an early feature of the financial strains caused by the coronavirus crisis.
The repurchase agreements fell to $ 61 billion, the lowest since the Fed restarted intervention in the short-term loan markets in September.
Reports by Dan Burns, Ann Saphir, Jonnelle Marte; Chris Reese and Alistair Bell edition
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