Summary:
Since Summer 2023, the Federal Reserve has been reducing its balance sheet and thus reducing the base money supply available to member banks. However, the $2 trillion that has flowed out of the money supply during this “tightening” has been matched dollar for dollar by money flowing back into the economy from the Reverse Repo Market. Now, as the Reverse Repo Market balance approaches zero, the Fed will have to decide whether it continues to shrink its balance sheet and decrease the money supply for real, bringing on a possible financial crisis, or freeze or increase its balance sheet and bring back high “inflation.”
A reckoning is coming soon.
Links:
Is the Fed Loosening or Tightening? It’s Complicated
Federal Reserve Balance Sheet Chart
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