The Fed indicated in the March 2022 #FOMC meeting they were going to “normalize” the balance sheet starting in June this year, allowing the bond portfolio to run off. By normalization, consensus (if there is such a thing) understood the balance sheet would need to shrink from $9Tn to $6Tn, which was the size prior to the #pandemic. Since June, the balance sheet has shrunk by $340Bn. If we annualize that figure, and project into the future, the fed will reach its objective - provided they don’t need to reverse course and stimulate the economy again to cope with a crisis - in approximately 10 years, by 2032. How realistic is to think in linear terms, when we may be entering into #stafgflation, with worrysome liquidity levels in the bond market (Treasury and credit markets), potential tensions in the labor market and declining #eps in the equity market?
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