Contact us
CALL US NOW 1-888-GOLD-160
(1-888-465-3160)

Fed Balance Sheet Reduction Not Delivering as Promised

  by    0   1

The Federal Reserve is all-in on the inflation fight.

Or is it?

While everybody focuses on interest rate cuts, the promised Fed balance sheet reduction isn’t going quite as promised.

Balance sheet reduction, technically known as quantitative tightening, was supposed to start in May. The FOMC statement released after the July meeting claimed that “the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in the Plans for Reducing the Size of the Federal Reserve’s Balance Sheet that were issued in May.”

The problem with this claim is that the Fed can’t continue what it hasn’t really started.

The plan announced in May was for $30 billion in US Treasuries and $17.5 billion in mortgage-backed securities to roll off the balance sheet in June, July and August. That totals $45 billion per month. In September, the Fed plans to increase the pace to $95 billion per month.

This isn’t a particularly aggressive roll-off to begin with.  At $95 billion per month, it would take 7.8 years for the Fed to shrink its balance sheet back to pre-pandemic levels. And it’s not even keeping pace with its own tepid plan.

Here’s the reality. Two months after the official start of QT, the Fed has reduced Treasury holdings by about $50 billion — $10 billion less than the plan. Meanwhile, Mortgage-Backed Security holdings increased by over $10 billion!

Of course, today we live in a world where it’s all about spin. Despite the Fed’s failure to deliver on a lackluster plan, Jerome Powell insists everything is fine.

So we think it’s working fine… And in September, we’ll go to full strength. And the markets seem to have accepted it. By all assessments, the markets should be able to absorb this. And we expect that will be the case. So, I would say the plan is broadly on track. It’s a little bit slow to get going because some of these trades don’t settle for a bit of time. But it will be picking up steam.”

Also, there is no recession.

Despite Powell’s assurance, the markets have not “absorbed this” particularly well. As an article on the Mises Institute Power and Market blog notes, despite the slow pace of tapering, we’re still in the middle of a bust. The NASDAQ is down 20% on the year and the S&P 500 is down 13.5%. And as our technical analyst noted, “the Fed’s mere exit from increasing their balance sheet is already being felt in the bond market with massive congestion in the yield curve.”

This calls into question the Fed’s commitment to fighting inflation. If the central bank truly viewed inflation as “public enemy No. 1” and believed the economy is strong enough to handle tighter monetary policy, why isn’t it aggressively reducing its balance sheet?

Gold Scams Free Report

Get Peter Schiff’s most important gold headlines once per week – click here – for a free subscription to his exclusive weekly email updates.
Interested in learning how to buy gold and buy silver?
Call 1-888-GOLD-160 and speak with a Precious Metals Specialist today!


Related Posts

Atlanta Fed Lowers Q3 GDP Growth Forecast Close to Zero

The Atlanta Fed has lowered its GDP estimate for the third quarter to 0.3%, and the trend is downward. That means the economy is teetering on the verge of another quarter of negative GDP growth. Would that be enough to raise recession alarms?

READ MORE →

Fed Rate Hikes Will Add Trillions to National Debt

Federal Reserve rate hikes will add trillions to the national debt, according to an analysis by the Committee for a Responsible Federal Budget.

READ MORE →

Chinese Gold Demand Appears to Be Picking Up Again

Gold demand in China showed renewed strength over the last two months despite scattered COVID-19 lockdowns. Both gold withdrawals from the Shanghai Gold Exchange (SGE) in August and gold imports in July were up. China ranks as the world’s number one gold consumer.

READ MORE →

Some Things Never Change: US Government Runs Another Big Deficit in August

Some things never change — such as the federal government spending more money than it has month after month after month. August was no different. The US government ran a massive $219.6 billion budget deficit last month, according to the latest Monthly Treasury Statement. That nudged out July as the second-largest monthly deficit in fiscal […]

READ MORE →

Queen Elizabeth’s Death Puts Squeeze on Already Tight Bullion Coin Market

The recent death of Queen Elizabeth II is squeezing gold and silver bullion coin markets that were already strained by tight supplies. There was an immediate and dramatic surge in demand for gold and silver bullion coins bearing the queen’s effigy upon her passing. According to News.com.au in Australia, “Collectors are scrambling to get their […]

READ MORE →

About The Author

Michael Maharrey is the managing editor of the SchiffGold blog, and the host of the Friday Gold Wrap Podcast and It's Your Dime interview series.
View all posts by

Comments are closed.

Call Now