Federal Reserve's balance sheet drops below $7 trillion, hitting the lowest in 6 years

According to PANews reports, in November, the total size of the US Federal Reserve’s balance sheet fell below $7 trillion for the first time since August 2020. This indicates that the Fed’s massive asset reduction is beginning in earnest. Currently, the Fed’s balance sheet has shrunk by approximately $2 trillion, and this trend is expected to continue.

Specific Scale of Ongoing Asset Reduction Policy

The Fed has recently clarified its intention to continue the balance sheet reduction policy through an official statement. Specifically, it is gradually reducing its holdings of US Treasury bonds by $25 billion and mortgage-backed securities (MBS) by $35 billion each month. This amounts to a total asset reduction of $60 billion per month, demonstrating how consistently the Fed’s monetary tightening stance is being implemented.

Signal of Normalization of Monetary Policy: Fed Balance Sheet Reduction

Since the 2008 financial crisis, the Fed’s asset size expanded rapidly. The current decline to around $7 trillion in the Fed’s balance sheet is interpreted as physical evidence of monetary policy normalization. If this trend continues, it is expected to have significant impacts on interest rate environments and market liquidity. In particular, it is noteworthy as a signal that the tightening stance will persist in the cryptocurrency market and the global financial markets.