Fed balance sheet shrinks by $1 trillion: Recession fears prevail

The shrinking balance sheet has stoked fears of a coming recession.

The latest report shows that the Federal Reserve’s (Fed) balance sheet currently stands at $7.86 trillion, a decrease of $1 trillion from the peak of $8.96 trillion. Especially just last week, the balance sheet was significantly reduced – $40 billion.

However, the balance sheet decline is still greater than the $3.5 trillion seen in the pre-COVID-19 period.

However, based on historical data, the recession followed a series of moves in 2006 that raised interest rates to 5.25. When a recession occurs, interest rates fall and balance sheets increase.

Notably, a similar situation occurred on the fringes of the COVID-19 pandemic in 2019. This raises an important question: “Are we ready to see this cycle repeat itself?”

Federal Reserve balance sheet, effective federal funds rate.Source: Fred

VIC encryption compilation

related news:

Bitcoin investors are “bullish” on Fed’s cumulative loss of $100 billion

U.S. House of Representatives passes bill to prevent the Federal Reserve from issuing CBDC

The Federal Reserve releases the “Tokenization of Real Assets” report, optimistic about the prospects of the RWA field