Now the Fed has announced that it will slow down the balance sheet reduction from June. The rate of reduction of US debt holdings will be reduced from US$60 billion to US$25 billion per month, and the rate of reduction of mortgage-backed securities will remain unchanged at US$35 billion per month. This slowdown in balance sheet reduction is still quite large. It can be regarded as a gradual relaxation of monetary policy. From the definition of balance sheet expansion (water release), slowing down the balance sheet reduction from June is not equivalent to water release. But it means reducing the speed of fund recovery, which will help keep funds in the market abundant and offset the liquidity tightening effect brought about by high interest rates.
The following figure is the structure of the Fed's liabilities and the trend chart of the Fed's balance sheet.
The balance of the Fed's balance sheet is about US$7.3 trillion, and the reduction is much lower than before. The current value of currency in circulation remains basically unchanged, and the overnight reverse repurchase and the balance of the Treasury TGA have both declined.
The liquidity of the US dollar has been on the rise recently (but there has been no substantial major turn). Perhaps this is the driving force behind the continued rise of the S&P due to the stimulus of sentiment and expectations, coupled with the fact that Nvidia's financial report data is too good. Expectations for AI have mobilized sentiment. Stimulate the upward breakthrough. BTC is also rising, which is a double positive in terms of sentiment and real money (but it is still far from real expansion of the balance sheet (releasing money))
June is coming, and the slowdown of balance sheet reduction will be officially implemented. We will wait and see the performance of the risk market (especially BTC)
