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

The Fed Is Already Talking About Increasing Its Balance Sheet Again

  by    0   0

All of a sudden, the Federal Reserve is considering increasing its balance sheet again.

Remember back in September? QE was on “autopilot.” Then we got the “Powell Pause” and suddenly, the talk was that balance sheet reduction could be winding down. Powell confirmed that was the case just a couple of weeks ago when he told a congressional panel the central bank would be in a position to “to stop runoff later this year.”

Peter Schiff has been saying the Powell Pause wasn’t going to be enough – that the next step would be interest rate cuts and the launch of another round of quantitative easing. Well, on Wednesday (March 6) the Federal Reserve Bank of Kansas City released a paper that indicates the central bank is already considering when to begin building up its balance sheet again, this according to Reuters.

Analysts and traders worry that a shrinking Fed balance sheet is making it expensive for banks to finance loans and trading positions, restricting their lending to companies and consumers.”

The Fed began the balance sheet roll-off in October 2017. At that point, it had grown to $4.5 trillion after three rounds of quantitative easing in response to the Great Recession.

When Ben Bernanke launched QE, he insisted the Fed was not monetizing debt. He said the difference between debt monetization and the Fed’s policy was that the central bank was not providing a permanent source of financing. He said the Treasurys would only remain on the Fed’s balance sheet temporarily. He assured Congress that once the crisis was over, the Federal Reserve would sell the bonds it bought during the emergency.

The issue, according to the Kansas City Fed paper, is that the central may need to hold a higher level of bank reserves “to properly implement monetary policy.”

Bank Reserves make up a big chunk of the Fed’s balance sheet and they have been shrinking rapidly with quantitative tightening.

 

Kansas City Fed Senior Economist A. Lee Smith wrote that the Fed may need to hold as much as $1.5 trillion in bank reserves on its balance sheet. According to Reuters, that would be a relatively small decline from less than $1.7 trillion now, implying as little as a few more months of reductions.

Smith has been concerned about the impact of rising interest rates on the economy. According to Reuters, last month, he wrote that the shrinkage of the US balance sheet has played a significant role in exerting upward pressure on borrowing costs.

Rising in borrowing costs are not good news in an economy built on debt.

Of course, this is just one estimate by one Fed economist. But the fact that the central bankers are already floating trial balloons about increasing the balance sheet indicates that there are concerns about the effect of tightening on the economy and it gives credence to what Peter has been saying.

Bitcoin buy gold from SchiffGold

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

Singapore Adds Gold to Reserves for the First Time in Over 2 Decades

Singapore expanded its gold reserves by about 20% earlier this year, joining a growing number of countries increasing their investment in the yellow metal.

READ MORE →

Silver Demand Expected to Exceed 1 Billion Ounces in 2021

Every key area of silver demand is forecast to rise in 2021, according to the Silver Institute’s Interim Silver Market Review. The institute projects silver demand will come in at 1.029 billion ounces this year. That would mark the first year demand has exceeded 1 billion ounces since 2015.

READ MORE →

Jerome Powell 2.0

President Joe Biden has tapped Jerome Powell to serve a second term as chairman of the Federal Reserve. Biden said Powell’s “steady leadership” helped calm markets as governments shut down the economy due to coronavirus, and he expressed confidence in Powell’s future leadership. “I believe Jay is the right person to see us through,” Biden […]

READ MORE →

The Fed Pulled Off a Masterful Manipulation of the Junk Bond Market

The Federal Reserve pulled off a magnificent manipulation of the junk bond market, facilitated a massive wealth transfer from savers to speculators, pocketed millions of dollars, and then washed its hands of the matter. In March 2020, as governments shut down the economy for coronavirus, the Fed slashed interest rates and launched a massive quantitative […]

READ MORE →

Poland Plans to Add Another 100 Tons of Gold to Its Reserves

During a recent interview, Bank of Poland President Adam Glapiński said the central bank plans to add 100 tons of gold to its reserves in 2022. In 2018, the National Bank of Poland began aggressively adding gold to its reserves. Through the first half of 2019, the Polish central bank added more than 100 tons of […]

READ MORE →

Comments are closed.

Call Now