Composition of the Federal Reserve’s Portfolio
The overall size of the Federal Reserve’s holdings of Treasury
securities depends principally on the growth of Federal Reserve notes, however,
the amounts and maturities of the individual securities held depends on the
FOMC’s preferences for liquidity. The Federal Reserve has guidelines that limit
its holdings of individual Treasury securities to a percentage of the total
amount outstanding. These guidelines are designed to help the Federal Reserve
manage the liquidity and average maturity of the System portfolio. The
percentage limits under these guidelines are larger for shorter dated issues
than longer dated ones. Consequently, a sizable share of the Federal Reserve’s
holdings is held in Treasury securities with remaining maturities of one year
or less. This structure provides the Federal Reserve with the ability to alter
the composition of its assets quickly when developments warrant. At the end of
2004, the Federal Reserve’s holdings of Treasury securities were about evenly
weighted between those with maturities of one year or less and those with
maturities greater than one.