Slow Pace of Balance Sheet Reduction Calls Into Question Fed’s Commitment to Inflation Fight

By Schiffgold

2023-01-01

Most people have focused on Federal Reserve interest rate cuts as it battles price inflation. But there is another element in the inflation fight most people ignore – balance sheet reduction.

It isn’t going well.

The December FOMC statement mentioned balance sheet reduction in passing.

The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in the Plans for Reducing the Size of the Federal Reserve’s Balance Sheet that were issued in May.”

The problem with this statement is it isn’t following the plan described in May.