Quick Take
Data from FRED shows that the Federal Reserve’s balance sheet has increased by $2.6 billion to $7.2 trillion. Despite the Fed’s ongoing quantitative tightening, there have been intermittent periods of stagnation or growth in the balance sheet. However, the long-term trend remains downward.
The balance sheet peaked at $9.0 trillion in the second quarter of 2022, indicating a roughly 22% reduction over the past two years. Pre-pandemic, the balance sheet stood at $4.2 trillion, reflecting an over 50% increase since then.
As the end of the rate-hiking cycle approaches, speculation about the Federal Reserve’s first rate cut is mounting. This speculation has intensified following the Consumer Price Index (CPI) inflation print on July 11, which recorded a deflationary headline rate month-over-month at -0.1%. The decrease in CPI inflation suggests a cooling economy, potentially prompting the Fed to consider a rate cut. The balance sheet and inflation trends will be crucial in shaping the Fed’s monetary policy decisions in the coming months.
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