A special discussion on the balance sheet -- it sounds like the FOMC is in a hurry to shrink it.
What you're not hearing about the Fed's "quantitative tightening"
Thursday, January 6, 2022
How the Fed can save the world by building its balance sheet, but not destroy it by letting it shrink.
Update to Strategic View
The December FOMC minutes point to the Fed running off its balance sheet sooner than expected. Last time, from 2017 to 2019, this did not lead to a back-up in bond yields nor an impediment to stocks. Buying bonds grows the Fed's balance sheet without growing bank balance sheets, nor funding the government. The only effect is to reduce bank risk exposure. Allowing bonds to mature without reinvesting the proceeds shrinks the Fed's balance sheet without shrinking bank balance sheets, and without either requiring banks to take more risk or engage in more government financing.