WASHINGTON, May 1 — The Federal Reserve’s balance sheet increased to a record US$6.70 trillion (RM28.7 trillion) this week, but the pace of expansion slowed dramatically as key credit markets have calmed since a firestorm of volatility sparked by the coronavirus pandemic drove the central bank to take emergency measures last month.

The central bank’s balance sheet as of Wednesday was about US$81.75 billion higher than the US$6.62 trillion a week earlier, data released by the Fed yesterday showed. It was the smallest increase in seven weeks and was just a fraction of the record US$586 billion weekly increase in late March.

In all the Fed’s stash of assets is up nearly 60 per cent from just US$4.2 trillion in early March, when it slashed interest rates to zero, restarted bond purchases and rolled out an unprecedented range of programs to keep credit flowing and shore up business and household confidence as the outbreak forced a wave of stay-at-home orders across the country, torpedoing economic activity.

It is now the equivalent of more than 31 per cent of the size of the US economy at the end of the first quarter, and will certainly grow larger in the weeks ahead as the Fed keeps piling on assets and the economy shrinks further.

The US economy contracted at a 4.8 per cent annualised rate in the first quarter on the back of widespread shutdowns of nonessential business aimed at containing the spread of the disease. It may shrink at four times that rate or more in the second quarter with more than 30 million Americans thrown out of work since March 21.

As of Wednesday, the Fed’s holdings of Treasury securities rose to US$3.97 trillion from US$3.91 trillion a week earlier. Mortgage-backed bond holdings were little changed at US$1.60 trillion.

Use of the Fed’s central bank liquidity swap lines, which allow foreign central banks to exchange their local currencies for dollars, rose to US$438.95 billion from US$409.7 billion the previous week.

Loan balances for the Fed’s discount window, its last-resort lending programme for banks, fell to US$31.8 billion from US$33.7 billion a week ago. — Reuters