The Fed Pumps Up Its Balance Sheet

Many people, in previewing the FOMC meeting, were anticipating that an expansion of the Fed's various securities programs was a possibility and that it was likely to be favored over any purchase of Treasuries.

This is how events played out, although in hindsight it would have made sense to believe that in order to optimize its securities purchase program, the Fed might want to anchor these securities by purchasing Treasuries -- the anchor -- and so it did.

It is notable that the expansion of the Fed's securities purchase program was far larger than its foray into Treasuries. Again, this is a sign that the Fed wants to continue to emphasize its purchase of securities in the private credit markets most of all, while keeping an eye on the anchor -- Treasuries. This theme is likely to be the dominant policy theme for a while, with the Fed staying active in markets vital to unclogging the credit system, and making sure that the anchor stays firmly in place.