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