NEW YORK (Reuters) - The U.S. Federal Reserve’s balance sheet fell in the latest week, following eight consecutive weeks of growth, as agency mortgage-backed securities holdings fell more than Treasury holdings increased, Fed data released on Thursday showed.
The balance sheet — a broad gauge of Fed lending to the financial system — declined to $2.403 trillion in the week ended December 29 from $2.410 trillion the prior week.
The balance sheet has been expanding since the U.S. central bank last month began a second bout of quantitative easing, known as QE2. The Fed expects to execute about $600 billion in U.S. government debt purchases over an eight-month period in an effort to stimulate the economy.
The balance sheet had topped the previous record of $2.333 trillion set in May as the Fed was about to end its initial round of bond purchases that involved $300 billion of Treasuries and $1.425 billion in mortgage-related securities.
The second round of quantitative easing follows the Fed’s use of proceeds from maturing mortgage securities in its portfolio to buy Treasuries — a move that started in August. Since that time, it has purchased about a combined $236 billion in Treasuries.
The central bank’s holdings of U.S. government securities totaled $1.016 trillion on Wednesday, up from $1.007 trillion last week.
The Fed’s ownership of mortgage bonds guaranteed by Fannie Mae FNMA.OB, Freddie Mac FMCC.OB and the Government National Mortgage Association (Ginnie Mae) was $992 billion, down from $1.008 trillion a week ago.
The Fed’s holdings of debt issued by Fannie, Freddie and the Federal Home Loan Bank system totaled $147.46 billion, unchanged from the prior week.
The Fed’s overnight direct loans to credit-worthy banks via its discount window averaged $52 million a day in the week ended Wednesday, up from the $28 million daily pace the prior week.
Reporting by Karen Brettell; Editing by Leslie Adler