The Fed's "balance sheet expansion" has a significant impact on the global economy, relating to when global inflation will arrive and how wealth will change.
Recently, U.S. Treasury bonds have been continuously sold off, with yields rising and prices falling. The Fed has been a major player in the sale of U.S. debt, having reduced the size of its balance sheet significantly over the past two years, with a large decrease in its holdings of U.S. Treasuries.
Generally speaking, the Fed tightens its balance sheet when it raises interest rates and expands it when it lowers rates. However, even with a rate cut in September, the balance sheet is still shrinking. Powell stated that rates would not be lowered until core inflation is below 2%, yet inflation in September exceeded 2% and rates were still cut by 50 basis points, possibly due to an economic downturn, as the "Sam's Law" indicates changes in unemployment rates akin to a recession. But the October non-farm payroll and CPI data exceeded expectations, making it seem like the economy is recovering, which has made the data quite confusing.
The Fed has already incurred losses of over $200 billion, and while interest rates need to be lowered, the political battle surrounding the November elections is heating up, with different factions affected differently by rate cuts, leading to lively internal conflicts. After lowering rates, the Fed is also not in a hurry to expand the balance sheet, possibly due to external factors, such as the East's counteractions to attract funds, as the U.S. fears capital flight.
Historically, the Fed has only made large interest rate cuts and expanded the balance sheet to rescue the economy during serious internal financial crises. Currently, U.S. Treasury yields are too volatile, debt issues are severe, and interest expenses are frighteningly high. Both of the world's two largest economies are working to reduce debt, and it is estimated that next year the U.S. may significantly lower interest rates and "flood the market," which could make inflation a major theme for the global economy in the coming years. Attention should be paid to the Fed's actions and their impact on the global economy.