The total amount of assets held by United States Federal Reserve (Fed) banks is up 3.56% in the past week, rising to $8.639 trillion from $8.342 trillion, trackers on March 17 show.
Fed Injected $297 Billion Into The Market Last Week
With the Fed holding assets and injecting $297 billion in the last week alone to avert a contagion following the collapse of three banks last week, the central bank has reverted to quantitative easing.
The result is what observers say is a “Fed Put,” a phenomenon where the central bank intervenes and rolls out an accommodative policy whenever there are sharp price falls in the equity markets. Early this week, bank stocks crashed with widespread fears of bank runs should the Fed fail to intervene.
Observers note that the $297 billion increment over the last week was not due to asset purchases since last week, Treasuries and mortgage-backed securities declined.
Instead, this expansion was due to the $12 billion Bank Term Funding Program and a series of loans extended to shore up major banks. For this action, the Fed unwound what they have been trying to achieve over the last year.
The “Fed Put” is back with assets on their balance sheet increasing $297 billion over the last week, the largest spike higher since March 2020. Thus nearly half of the Quantitative Tightening since last April was undone in a week.
Bitcoin And Crypto Prices Rally
Following the collapse of Silvergate Bank, Silicon Valley Bank (SVB), and Signature Bank, all of which were considered crypto-friendly and aided blockchain projects in a way to process funds, bank stocks across the board collapsed.
Meanwhile, the USDC, a stablecoin pegged to the US dollar, briefly de-pegged following news that it had $3.3 billion locked up in SVB.
Moreover, there was turbulence in DAI, an algorithmic stablecoin managed by MakerDAO, one of the largest DeFi protocols. MakerDAO initiated steps to ensure DAI remains at parity with the USD, boosting MKR, the platform’s governance token.
While normalcy has returned and Bitcoin is back trading above $26,000, a nine-month high, the intervention by the US government and Fed seemed to have unwound most of their tightening efforts over the last few months.
As trackers show, the Fed has been gradually unloading assets from its portfolio over the past months. This was as they tightened around the economy, intervening to curb runaway inflation.
This tightening looks to have worked though, as recent economic data revealed that inflation fell in February to 6%, the lowest in over 15 months. This contraction in consumer prices was in line with market expectations.
Feature Image From Andrew Harnik/AP, Chart From TradingView