The Fed Added $333 Billion of Bills in a Year. Reserve Balances Fell $376 Billion.

by Alina Castellanos · August 16, 2026

Economics Correspondent, US Market Current

The Federal Reserve's weekly balance sheet release is rarely where a policy argument gets settled, but the edition published on Thursday, August 13 contains a piece of arithmetic that is difficult to look away from. Over the twelve months ending August 12, the Fed added $333.1 billion of Treasury bills to the portfolio it holds outright. Over exactly the same twelve months, reserve balances fell by $375.99 billion. The two numbers are not the contradiction they first appear to be, and the release itself explains why.

Both figures come from Table 1 of statistical release H.4.1, titled "Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks," which reports in millions of dollars. The table carries four numeric columns. The first three sit under the spanning heading "Averages of daily figures": a level column headed "Week ended Aug 12, 2026," and two change columns printed under a shared "Change from week ended" spanner, dated "Aug 5, 2026" and "Aug 13, 2025." The fourth column is a single-day level, headed "Wednesday Aug 12, 2026." Every change quoted in this article is taken from the year-over-year column of weekly averages — the one dated Aug 13, 2025 — and every level, unless stated otherwise, is the weekly average. The single-day column is not interchangeable with either, and mixing them is the easiest way to get this release wrong.

Start with the bills line. The Fed's holdings of Treasury bills averaged $528,576 million in the week ended August 12, up $333,083 million from the comparable week a year earlier in that year-over-year average column. That implies a year-ago average of $195,493 million, so the bill book is about 2.7 times the size it was last August. Against that, the same table's year-ago figures put the Fed's non-bill Treasury holdings — nominal notes and bonds, inflation-indexed issues and accrued inflation compensation — at about $4.01 trillion. A bill position that was a rounding error beside $4 trillion of coupons is now a structural feature of the portfolio, not a drift.

Bills accounted for slightly more than the entire increase in the Fed's Treasury portfolio. Total U.S. Treasury securities held outright averaged $4,533,467 million, up $328,762 million year over year — a smaller number than the $333,083 million rise in bills on its own. Nominal notes and bonds added $32,151 million to $3,621,850 million; inflation-indexed notes and bonds fell $33,351 million to $276,076 million and inflation compensation fell $3,122 million to $106,963 million. So the non-bill Treasury categories did net to a decline, of about $4.3 billion. Bills now represent roughly 11.7 percent of the Fed's Treasury holdings, against about 4.7 percent a year ago on the same measure.

The mortgage side explains why none of this shows up as balance sheet expansion. Agency mortgage-backed securities averaged $1,930,855 million, down $189,808 million from a year earlier and unchanged on the week. Netting the two, total securities held outright averaged $6,466,668 million, up only $138,953 million over the year, and total factors supplying reserve funds rose $112,317 million. The Fed's portfolio is not growing much. It is being rebuilt, from mortgages into very short Treasury paper — and a swap of that kind adds nothing to reserves by itself.

That rebuild is deliberate, and the documents saying so are on the record. In a statement dated October 29, 2025, the New York Fed said that beginning in December the Desk would "roll over at auction all principal payments from the Federal Reserve's holdings of Treasury securities" and would "reinvest all principal payments from the Federal Reserve's holdings of agency securities into Treasury bills through secondary market purchases." A follow-up statement on December 10, 2025 launched a separate programme of reserve management purchases — buying of Treasury bills, or if needed Treasury securities with three years or less remaining, in order to "maintain an ample level of reserves" while accommodating "projected trend growth in the demand for Federal Reserve liabilities as well as seasonal fluctuations" — with operations starting December 12, 2025. That statement also said at the outset that after an initial elevated pace, "the pace of total purchases will likely be significantly reduced in line with expected seasonal patterns." The Implementation Note issued after the July 29, 2026 meeting carries both instructions forward, alongside a target range of 3-1/2 to 3-3/4 percent, interest on reserve balances at 3.65 percent, an overnight reverse repo offering rate of 3.5 percent with a per-counterparty limit of $160 billion a day, and standing overnight repo operations at 3.75 percent.

So the asset side did its job. The liability side is where the reserves went. The U.S. Treasury, General Account averaged $963,950 million in the week ended August 12, up $459,646 million from a year earlier, which implies a year-ago average of $504,304 million. Treasury's checking account at the Fed is close to double what it was last August, and its increase over the year is on its own larger than the entire $375,991 million decline in reserve balances. This is not a record TGA level — the account ran far higher in 2020 — but it is a large one, and it is the dominant swing factor in this release.

The other competing liabilities were comparatively quiet, and one of them worked in reserves' favour. Currency in circulation averaged $2,474,891 million, up $71,348 million on the year, a drain. Reverse repurchase agreements averaged $350,888 million, down $70,616 million, which releases reserves — but the composition matters. Foreign official and international accounts, the foreign repo pool, actually rose $1,820 million to $349,641 million. The entire decline came from the "Others" line, the one that captures the overnight reverse repo facility's domestic counterparties, which fell $72,436 million to $1,247 million. That facility, in other words, has essentially nothing left in it to give back.

Treasury is not planning to hand the cash back either. In its financing estimates released August 3, Treasury said it expects to borrow $739 billion in privately held net marketable debt during the July–September 2026 quarter, assuming an end-of-September cash balance of $950 billion — an estimate $68 billion higher than the one announced in May, which Treasury attributed "primarily to lower projected net cash flows, partially offset by the higher-than-assumed beginning-of-quarter cash balance." For October–December it estimated $628 billion of borrowing with an assumed end-of-December cash balance of $850 billion.

The refunding statement two days later, from Deputy Assistant Secretary for Federal Finance Brian Smith on August 5, set the near-term issuance path. "Treasury expects to maintain current auction sizes in benchmark bills in the coming weeks and anticipates potentially issuing a short-dated CMB to meet its cash management needs around the end of August," it said. On the coupon curve it was equally settled: "Treasury anticipates maintaining nominal coupon and FRN auction sizes for at least the next several quarters."

The scale of the cash balance is itself a policy choice that has crept upward. In a March 26, 2026 speech to the Money Marketeers of New York University, System Open Market Account manager Roberto Perli noted that Treasury has increased its assumed quarter-end TGA balance "from $320 billion in early 2016 to $850 billion on average in 2025," growth he attributed mostly to the size of the economy and the federal debt. Under the heading "Outlook for the Balance Sheet" he flagged the seasonal dimension directly: "In addition to trend growth, some non-reserve liabilities, particularly the TGA, exhibit significant seasonal variation, which can lead to swings in the supply of reserves and influence RMP decisions, as is the case now."

Which brings up the piece of this that changed on Friday. The New York Fed's Treasury securities operational details page shows the monthly purchase schedule now running from August 14 to September 14, 2026, with approximately $17.0 billion in reinvestment purchases and no reserve management purchases. The immediately preceding period, July 14 to August 13, planned roughly $17.6 billion of reinvestment purchases plus about $10 billion of reserve management purchases. In March, Perli said the Desk had "so far" been running reserve management purchases at a monthly pace of $40 billion.

It would be easy, and wrong, to read a zero as a decision to stop supporting reserves. Nothing the Desk has published says that. Its operational page states that monthly reserve management purchase amounts "are designed to maintain reserves within the ample range and are based on the Desk's projections for reserve demand and supply, as well as its assessment of current and prospective money market conditions," and that they are "not on a preset course and may vary from month to month." The Desk's own FAQ, updated June 17, 2026, describes exactly this pattern as designed behaviour: the purchases are "sized to accommodate seasonal fluctuations in demand for Federal Reserve liabilities, such as those driven by tax payment dates, as well as trend growth in demand over longer horizons," and "purchases may be increased in anticipation of projected troughs in reserves; purchases may then be reduced during periods of lower demand for Fed liabilities." A month with no reserve management purchases is consistent with that framework and with the December 2025 statement's own warning that the pace would fall back seasonally. It is not, on the published record, a signal about the future path of the balance sheet, and the Desk has not characterised it as one. What is left running this month is the mechanical recycling of mortgage paydowns into bills.

The same H.4.1 table offers a check on current money market conditions, and it does not look strained. Repurchase agreements — the line where the Desk's repo operations, including the standing repo facility, appear — averaged just $15 million on the week and stood at zero in the Wednesday, August 12 column. Loans averaged $5,775 million, down $671 million on the year. Perli, for his part, was explicit in March that the $40 billion pace had been anticipatory rather than remedial: "It's important to understand that the money market conditions I described earlier did not require an immediate injection of reserves at that pace to maintain rate control." He went on in the same paragraph to say the Desk had bought ahead of an expected April tax-season drain.

What the release does establish is the shape of the problem the Fed is managing. Reserve balances averaged $2,944,059 million, down from $3,320,050 million a year ago, over a period in which the Desk both recycled mortgage paydowns into bills and, from December, bought bills outright to add reserves. The offsetting force is not the portfolio; it is Treasury's cash management. Treasury's own published assumptions point to that balance staying near current levels through September before easing toward $850 billion at year end.

The near-term checkpoints are ordinary and dated. The next H.4.1 lands Thursday, August 20, and will capture the week that includes Treasury's flagged month-end cash management bill. The next monthly purchase schedule, which will show whether reserve management purchases stay at zero, is due on or around the ninth business day of September, per the Desk's stated practice. Minutes from the July 29 meeting are scheduled for Wednesday, August 19. Mid-September brings a quarterly corporate tax payment date — the kind of seasonal flow Perli identified as capable of pulling cash into the general account and influencing purchase decisions. Anyone reading Thursday's release for a verdict on ample reserves should note which column they are reading it from.