Economists Say Fed Could Shrink Balance Sheet in 2023, Critics Insist Central Bank Hasn’t Reduced QE at All

With inflation soaring in the U.S., economists from monetary policy analytics and forecasting firm LH Meyer say the U.S. Federal Reserve could stop shrinking its balance sheet earlier than expected. However, critics have said the U.S. central bank hasn’t really shrunk the Fed’s balance at all, and the entity has been accused of keeping quantitative easing (QE) practices persistent by continuing to purchase long-term securities from the market.

When speaking about a recession, Summers insisted that things will depend on “how skillful the [Federal Reserve] turns out to be… They’ve got a very, very difficult problem of balance in setting monetary policy, given the situation in which we find ourselves.”

The WSJ article details that recession risk may make the Fed stop shrinking its balance sheet “sooner than expected,” according to the LH Meyer economists. The researchers at the firm predict a recession is likely to take place in 2024. Furthermore, the report explains that it’s possible the U.S. central bank could halt quantitative tightening (QT) by next year.

Total assets grew by $4bn the past week to $8.896tn. Fed balance sheet now equal to 36.5% of [the] U.S.’s GDP vs ECB’s 81.9% and BoJ’s 135%.

For years now the Federal Reserve has been accused of bailing out the mega banks and creating unnatural booms and busts in the American and global economies. Since 2020, the Fed’s balance sheet is significantly larger than any time in history, and the monetary supply growth since that year is pretty hard to fathom.

What do you think about the recent WSJ report that says the Fed could halt the shrinking of its balance sheet? What do you think about the accusations that say the U.S. central bank hasn’t shrunk the balance sheet much at all? Let us know what you think about this subject in the comments section below.

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