This note decomposes the Federal Reserve’s balance sheet reduction into passive factors (inflation, real GDP growth) and active reductions in securities holdings. It highlights that the 2022-2025 period saw a significantly larger active component (59% of the decline) compared to the 2014-2019 period (56% passive factors), reflecting accelerated policy normalization due to post-pandemic economic conditions and revised FOMC communications emphasizing a faster pace of balance sheet runoff.
https://www.federalreserve.gov/econres/notes/feds-notes/a-decomposition-of-balance-sheet-reduction-20260202.html
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