According to the latest report, the Federal Reserve’s balance sheet currently stands at $7.86 trillion, a decrease of $1 trillion from its peak of $8.96 trillion. Particularly concerning is the significant drop of $40 billion in the balance sheet in just the past week.
However, it’s important to note that the decrease in the balance sheet is still more than $3.5 trillion higher than it was before the onset of the COVID-19 pandemic.
Historically, economic recessions have occurred following actions such as raising interest rates to 5.25% in 2006. When recessions happen, interest rates typically decrease, and the balance sheet expands.
Interestingly, a similar situation occurred on the brink of the COVID-19 pandemic in 2019. This raises an important question: “Are we prepared to witness a repeat of this cycle?”