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Fed Balance Sheet: Total Assets

Structural Indicator

When the Federal Reserve buys bonds — Treasuries, mortgage-backed securities, or other assets — it pays for them by creating new bank reserves, which shows up as a larger Fed balance sheet. This is quantitative easing (QE): a way of injecting liquidity into the financial system and pushing down longer-term interest rates, used most aggressively during the 2008 financial crisis and the 2020 pandemic. Quantitative tightening (QT) is the reverse — letting those bonds mature without replacing them, which drains reserves from the system and is one reason liquidity can tighten even when the Fed isn't raising short-term rates.

What the Fed Owns: Treasuries vs. Mortgage-Backed Securities

Structural Indicator

The Fed's balance sheet isn't just one thing — it's mostly Treasury securities (the solid line) plus a large holding of mortgage-backed securities (the dashed line) accumulated mainly during QE programs after 2008 and 2020. The Fed's Treasury holdings are effectively a direct buyer of the federal debt covered on the Government Finances dashboard — when the Fed is expanding its balance sheet, it is absorbing some of the government's new borrowing directly, which is one reason QE tends to coincide with lower long-term yields even as deficits grow.

Foreign Holdings of U.S. Treasury Debt

Structural Indicator

Roughly a quarter of U.S. federal debt is held by foreign governments and international investors — central banks like Japan's and China's have historically been among the largest holders. Strong foreign demand for Treasuries helps keep U.S. borrowing costs low, since it means the government isn't relying solely on domestic buyers to absorb new debt issuance. A declining foreign share doesn't necessarily signal trouble on its own, but it does mean domestic buyers — banks, mutual funds, and increasingly the Fed itself — have to absorb a larger share of new issuance, which can pressure yields higher.

Trade Balance & the "Twin Deficits"

Coincident Indicator

This chart shows the U.S. trade balance — exports minus imports of goods and services. The U.S. has run a trade deficit for decades, meaning it imports more than it exports. That matters here because of a mechanism economists call the twin deficits: when the U.S. buys more from abroad than it sells, dollars flow out to foreign sellers and their governments. Those dollars don't just disappear — foreign holders often reinvest them back into U.S. assets, and Treasury securities are one of the largest, most liquid places for that money to go. In other words, the trade deficit and foreign financing of the federal deficit are two sides of the same set of capital flows — a persistent trade deficit is part of why foreign investors have historically been such large buyers of U.S. government debt.

Putting It All Together

The federal government has to finance its deficit somehow, and this page covers the two largest non-domestic-investor sources: the Federal Reserve's own bond purchases, and foreign demand tied to persistent trade imbalances. When both are strong, the government can borrow heavily without pushing interest rates sharply higher. When the Fed is tightening and foreign demand is soft, the government competes harder with the private sector for financing, which can push rates up — for how that shows up directly in Treasury yields, see the Yield Curve Analysis dashboard. For how household and corporate borrowers compare to the government's own leverage, see the Private Sector Debt dashboard.