Peter's Blog

Fed Balance Sheet Reduction: Too Little Too Late

Another month in and the Fed is still struggling to implement Quantitative Tightening (QT). According to the plan the Fed outlined last May, the central bank should be shrinking the balance sheet by at least $47.5B a month, spread between $30B in Treasuries and $17.5B in MBS. That’s not happening.

Did the Fed Forget to Start QT?

The first month of Federal Reserve balance sheet reduction turned out to be a big dud. As it turns out, the balance sheet shrank by less than $1 billion in June during the first month of quantitative tightening. As part of its vaunted inflation fight, the Fed announced in May that Quantitative Tightening (QT) was […]

Foreign Holders Join the Fed in Reducing Holdings

Despite rising through the month, the Fed balance ended up shrinking slightly by $25 billion in May, even as it slightly increased its Treasury holdings. This was the first monthly decline in the balance sheet since $220B of “Other” rolled off in July 2020. In that case, “Other” were repurchase agreements with foreign entities to […]

Fed Balance Sheet Creeping Upward Again

The Federal Reserve has talked a lot about fighting inflation. But what has it actually done? In practice, not a lot. It has nudged interest rates up 75 basis points. And while the Fed has ended the massive quantitative easing program that it ran during the pandemic, it pushed balance sheet reduction back from May […]

Can the Fed Pull Off a Magic Trick?

For the second month in a row, the Fed held true to its word and kept the balance sheet relatively flat. In aggregate, the balance sheet expanded by only $2B, though it did reach an all-time high mid-month. The drop to close out the month came as a result of $15B in mortgage-backed securities rolling […]

If the Fed Is Fighting Inflation Why Is the Balance Sheet Still Expanding?

If the Fed is fighting inflation and has ended quantitative easing, why is its balance sheet still going up? In the week ending April 13, the balance sheet grew by $27.9 billion, hitting a new record of $8.965 trillion. This is up about $3 billion from its previous high in March.

While Talking About Fighting Inflation, the Fed Continued to Expand Its Balance Sheet

Earlier this month, the Federal Reserve launched its first salvo against inflation, raising interest rates by a quarter-percent. It was a pretty weak shot given 7.9% CPI, but Jerome Powell and other Fed presidents ratcheted up the tough rhetoric last week. Powell raised the possibility of 50 basis-point rate hikes at future meetings and San […]

Fed’s Taper Struggle: Central Bank Adds Another $100 Billion to Balance Sheet

The Fed is talking taper. But it seems to be having a hard time actually tapering. The central bank added another $100 billion to its balance sheet in January.

Can the Deficit Fall Below $1 Trillion in 2022?

In the calendar year 2021, federal tax revenues surged by an incredible 25% compared to 2020 and were up 22.8% over 2019 (pre-COVID). But the surge in tax revenues was not enough to overcome a record $6.8 trillion in spending, breaking the spending record set in 2020 by 1.6%.

Has the Taper Finally Started? Who Will Fill the Massive Gap?

While on the surface, it appears the Federal Reserve asset purchase taper has started, it’s not as easy to prove when you dig into the details. The Fed is certainly not being as aggressive as they promised, and for good reason. As the Fed leaves the bond market, who will fill the gap? Since 2019, […]