Fast Take
The Federal Reserve’s stability sheet has seen one other sizeable discount this previous week, shedding roughly $40 billion. This now brings the stability sheet’s cumulative contraction to round $1 trillion from its peak. At its zenith, the stability sheet surged to an unprecedented $8.96 trillion.
At present, it stands at a barely extra modest $7.86 trillion, indicating a discount of roughly $1.1 trillion. Nonetheless, it’s necessary to contextualize this contraction throughout the broader financial panorama. Even with this discount, the stability sheet stays $3.5 trillion bigger than earlier than the COVID-19-induced enlargement.
A recession has adopted situations of rate of interest hikes by the system since 2006. We noticed this sample when the Fed elevated charges to five.25; because the recession ensued, the charges dropped, and the stability sheet inflated. An identical circumstance unfolded on the verge of the COVID-19 pandemic in 2019. This poses the important query: Are we poised to witness a recurrence of this cycle?
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