The shrinking giant: Fed’s balance sheet down by $1T

Quick Take

The Federal Reserve’s equilibrium expanse has seen different sizeable simplification this past week, shedding astir $40 billion. This present brings the equilibrium sheet’s cumulative contraction to astir $1 trillion from its peak. At its zenith, the equilibrium expanse surged to an unprecedented $8.96 trillion.

Currently, it stands astatine a somewhat much humble $7.86 trillion, indicating a simplification of astir $1.1 trillion. However, it’s important to contextualize this contraction wrong the broader economical landscape. Even with this reduction, the equilibrium expanse remains $3.5 trillion larger than earlier the COVID-19-induced expansion.

A recession has followed instances of involvement complaint hikes by the strategy since 2006. We observed this signifier erstwhile the Fed accrued rates to 5.25; arsenic the recession ensued, the rates dropped, and the equilibrium expanse inflated. A akin condition unfolded connected the verge of the COVID-19 pandemic successful 2019. This poses the captious question: Are we poised to witnesser a recurrence of this cycle?

Federal Reserve Balance sheet, Effective national funds rate: (Source: FRED)

The station The shrinking giant: Fed’s equilibrium expanse down by $1T appeared archetypal connected CryptoSlate.