The Federal Reserve’s balance sheet stood at $6.76 trillion on Oct. 14, according to the weekly H.4.1 release published Thursday afternoon. That is about $159 billion more than a year earlier. For a central bank led by a chair who has long argued for a smaller Fed footprint in markets, the direction of the number is worth a closer look.
The size has barely moved in relative terms. The mix has changed a great deal. Treasury bill holdings have nearly tripled in a year while mortgage-backed securities keep running off, and the 30-year mortgage rate sits at 7.40%. How the Fed and Treasury divide the job of holding long-term debt is now a live question for borrowers, not just bond desks.
1. The numbers
| Item (week ended Oct. 14, 2026) | Level | Change from a year earlier |
|---|---|---|
| Securities held outright | $6,470 billion | +$185 billion |
| Treasury securities | $4,570 billion | +$373 billion |
| of which: Treasury bills | $565 billion | +$370 billion |
| of which: nominal notes and bonds | $3,618 billion | +$39 billion |
| Mortgage-backed securities | $1,898 billion | −$188 billion |
| Reserve balances | $3,022 billion | +$3 billion |
| Reverse repurchase agreements | $332 billion | −$22 billion |
Three things stand out. Bills went from roughly $195 billion to $565 billion. Mortgage-backed securities fell by $188 billion as homeowners paid down principal. And reserves, the cash banks hold at the Fed, are essentially flat on the year at about $3.0 trillion.
2. Why the Fed is buying bills
The growth is mechanical, and the directive the committee approved on Sept. 16 spells it out. Principal from maturing mortgage bonds is not rolled back into mortgages. It goes into bills. Separately, the New York Fed’s trading desk can add short-dated Treasuries to keep reserves “ample.”
When appropriate, increase the System Open Market Account holdings of securities through purchases of Treasury bills and, if needed, other Treasury securities with remaining maturities of 3 years or less to maintain an ample level of reserves. Roll over at auction all principal payments from the Federal Reserve’s holdings of Treasury securities. Reinvest all principal payments from the Federal Reserve’s holdings of agency securities into Treasury bills.
EXCERPT · FOMC domestic policy directive, effective Sept. 17, 2026
The September minutes add that the desk had paused these reserve management purchases, since reserves appeared to remain in the ample range, and that the pace “was not on a preset course.” So the bill pile is growing from MBS reinvestment even when outright purchases stop.
Reading the H.4.1 from Budapest, the striking thing is how closely the Fed’s portfolio now resembles a money-market fund bolted onto a legacy mortgage book. That is roughly the shape advocates of a smaller, shorter balance sheet have described as the goal.
3. Warsh, the task force and the accord idea
Kevin Warsh has argued for years that the Fed should hold fewer long-term securities and play a smaller role in the Treasury market. Before taking office, he floated a new Treasury-Fed accord, a modern version of the 1951 agreement that freed the Fed from pegging bond yields. According to Bloomberg and CNBC reporting, he has suggested such an accord could let the Fed chair and the Treasury secretary state an objective for the size of the balance sheet alongside Treasury’s issuance plans.
None of that is policy. Neither institution has published an accord. The FOMC’s July minutes say the findings of a task force on balance sheet policy “would be a useful input” and that future meetings would allow “a comprehensive discussion.” Issues flagged included “market functioning and financial stability,” the balance sheet’s influence on financial conditions, and “the appropriate maturity composition” of the Fed’s Treasury holdings. In September, a few participants urged planning for market stress “while limiting the Federal Reserve’s footprint in the Treasury market.”
Whoever stops holding duration hands it to someone else, and mortgage borrowers sit near the end of that chain.
4. What it means for mortgage rates
Freddie Mac’s survey put the 30-year fixed rate at 7.40% on Oct. 15, unchanged on the week and up from 6.27% a year earlier. The 15-year rate was 6.71%. Most of that rise reflects the policy rate path and higher Treasury yields. The September minutes noted 2- to 10-year yields rose about 35 basis points over the intermeeting period, with market commentary citing geopolitical news, Treasury’s buyback program and heavy AI-related corporate borrowing as pushing up term premiums. Mortgage rates rose “a bit more” than 10-year yields.
A smaller Fed holding of long-dated Treasuries and MBS means private investors must absorb more interest-rate risk, and they charge for it through the term premium. The Fed’s MBS runoff already does this gradually. A faster or explicit shrinkage of long holdings, or a shift in Treasury issuance toward longer maturities under any accord, would add to it. The counterweight is Treasury’s own toolkit. Leaning issuance toward bills and using buybacks can offset some of that pressure, which is why the Fed-Treasury division of labor matters.
5. What to watch
- Every Thursday, 4:30 p.m. ET: the H.4.1 release; next on Oct. 22 and Oct. 29.
- Oct. 28: FOMC statement and implementation note, which would carry any change to reinvestment or purchase instructions.
- Early November: Treasury’s quarterly refunding announcement, which sets the coupon issuance mix for the coming quarter.
- Late 2026 or early 2027: findings of the balance sheet task force, per press reports; no date has been published.
- H.4.1 Factors Affecting Reserve Balances, Oct. 15, 2026 — Federal Reserve Board · federalreserve.gov
- Implementation Note issued Sept. 16, 2026 — Federal Reserve Board · federalreserve.gov
- Minutes of the FOMC, Sept. 15–16, 2026 — Federal Reserve Board · federalreserve.gov
- Minutes of the FOMC, July 28–29, 2026 — Federal Reserve Board · federalreserve.gov
- Primary Mortgage Market Survey — Freddie Mac · freddiemac.com
- Quarterly Refunding — U.S. Department of the Treasury · home.treasury.gov
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