Nothing seems to stir the ire of conspiracy-minded investors as much as the size of the Fed’s balance sheet. Whether it is being used to do “whatever it takes” to support asset prices or nefariously as a tool to support profligate fiscal policies by various administrations, its size and any related changes will inevitably be cause for contempt. And as is the case with most conspiracy theories, there is often a kernel of truth in each, making them difficult to dismiss entirely.
In this Economics Weekly, we look at two areas of the Fed’s balance sheet that are on investors’ minds: 1) the ongoing quantitative tightening (QT) and the extent to which the Fed will actually be able to shrink the size of its balance sheet before running into market turmoil, and 2) the rebuilding of the Treasury General Account (TGA) and what happens with the infamous reverse repo account.
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Richard de Chazal, CFA, is a London-based macroeconomist covering the U.S. economy and financial markets.