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Expand chart
Data: Federal Reserve; Chart: Danielle Alberti/Axios

Much has been made of the growth of the Fed's balance sheet from around $800 billion before the global financial crisis to over $7.7 trillion today.

What it is: The Fed's balance sheet is the number of assets the Fed holds — akin to an investment portfolio held by the central bank.

Be smart: The balance sheet has grown so large because even when the Fed brings its policy rate to 0% it can only control short-dated interest rates and it also wants to bring down long-dated interest rates like the 10-year Treasury yield that drives mortgages and other consumer borrowing costs.

  • Once the Fed has cut interest rates to 0%, "the balance sheet is how you push down further," says former Fed economist Claudia Sahm, a senior fellow at the Jain Family Institute.

Between the lines: The Fed uses its portfolio to influence the economy and its current $7.7 trillion total suggests it is doing a lot of influencing.

  • "Rigging the economy, that’s what the Fed is there to do," says Julia Coronado, president of MacroPolicy Perspectives and a former Fed staffer.
  • "Congress has given the Fed a job to do — it’s supposed to rig the economy in a favorable way, reduce the amplitude of business cycles, reduce the severity of business cycles, and get us back to work as fast as possible."

How it works: By purchasing U.S. government bonds and mortgage-backed securities (and as of 2020 even corporate bonds from companies like Apple), the Fed increases their price and reduces their yield.

  • And since borrowing costs for things like mortgages and auto loans (and markets utilized by Wall Street banks and hedge funds) are based on the yield of U.S. government debt, the Fed's purchases make it cheaper to borrow money, encouraging more individuals and institutions to do so.
  • The government finances its debt by issuing bonds for things it can't pay for with tax revenue, so the Fed's balance sheet makes that debt cheaper as well.

The bottom line: The Fed "is more and more active and more and more responsible for the management of not just the Treasury market, but the entire economy," says Quincy Krosby, chief market strategist at Prudential Financial.

  • "This is the question: Once a central bank goes down this road, at what point can they extricate themselves?"

Go deeper: How the Fed took control of the economy

Go deeper

The Fed takes on climate and race

Photo illustration: Aïda Amer. Photos: Robert Gauthier (Los Angeles Times), Stephen Maturen/Getty Images

Historically untouchable issues — like climate change and race — are now on the table for the Federal Reserve, as it wades further into uncharted territory.

Why it matters: The about-face has implications for how one of the world’s most influential economic bodies steers policy and regulates the nation's banks.

Dan Primack, author of Pro Rata
Apr 3, 2021 - Economy & Business

Biden returns to political norms on Fed decisions

Illustration: Eniola Odetunde/Axios

The modern Fed is designed to operate free of political pressures, as codified in a 1951 agreement with the U.S. Treasury Department. That gives monetary policy to the Fed and fiscal policy to Treasury.

Reality check: The president nominates Fed chairs and governors, who don't have lifetime appointments like Supreme Court justices, so politics has always maintained some influence.

Felix Salmon, author of Capital
Apr 3, 2021 - Economy & Business

To infinity and beyond

Photo illustration: Annelise Capossela/Axios. Photo: Stefani Reynolds/Bloomberg via Getty Images

We're not in the throes of a "Greater Depression," and we're not facing a tsunami of bankruptcies. In fact, the stock market is hitting new record highs, while employment is rising fast. For all of these things, thank one institution above all others: the Federal Reserve.

Why it matters: The coronavirus crisis has made abundantly clear the awesome power of central banks in general and of the Fed in particular.