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

Economists at LH Meyer, a forecasting and monetary policy analysis firm, believe the U.S. Federal Reserve may stop shrinking its balance sheets sooner than anticipated due to rising inflation. 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.

Forecasting Firm LH Meyer Predicts Fed Will Shrink the Balance Sheet Earlier Than Expected, While the Central Bank’s Reductions Remain Contested

U.S. monetary policymakers are up in arms over the economy’s inflationary pressures and the current debate over the technical definition of a recession. The Federal Reserve is expected to raise the federal funds rates by 75-100 basis points (bps), at its next meeting.

The Fed also announced last year that the balance sheet of $8.5 trillion would be reduced by June 1, in addition to rate increases. The Fed stated at that time that it would stop slowly buying mortgage-backed securities (MBS), and maturing Treasuries.

Economists are concerned that the U.S. central banking has some work ahead of it in terms of tightening its monetary policies as Ukraine’s war continues. Larry Summers, an ex-economic advisor to Barack Obama mentioned recently that there is a Fed issue.

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.”

According to the U.S. Consumer Price Index, June saw a 9.1% increase year over year. The inflation has caused a number of people to suspect the Fed will be dovish on the next two federal fund rate hikes and possibly halt the central bank’s QE reduction.

However, the Fed’s balance sheet reduction that was supposed to start in June has been contestedThere are many other observers as well thinkFed continued QE. On the other hand, economists from the forecasting firm LH Meyer say the Fed’s reduction “may stop early as recession risk rises,” according to a report published by the Wall Street Journal (WSJ).

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

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. Researchers at the firm predicted a recession in 2024. Furthermore, the report explains that it’s possible the U.S. central bank could halt quantitative tightening (QT) by next year.

The WSJ shared the editorial via Twitter many criticized the entire report, because they don’t believe the Fed has reduced its balance sheet. “It never started,” one individual wrote. “Balance sheet keeps growing, there was no reduction,” another person replied.

Critics Claim Fed’s QE Programs Are Fully Operational

Peter Schiff (economist and gold bug) arrives at the end June denouncedThe U.S. central banking for the continuation of the QE program. “The Fed’s balance sheet just expanded for the third week in a row in June,” Schiff said. “The rise of $1.9 billion increased the size of the Fed’s balance sheet to $8.934 trillion. I wonder when the Fed will stop creating inflation by ending QE and actually start fighting it by beginning QT.”

Welt’s author, and market-maniac on July 15th Holger Zschaepitz, said the Fed “has already stopped the shrinking of the balance sheet.” Zschaepitz added:

The week ended at $8.896tn, an increase of $4bn in total assets. Fed Balance Sheet now at 36.5% [the] U.S.’s GDP vs ECB’s 81.9% and BoJ’s 135%.

The Twitter account called Occupy the Fed Movement spoke about the Fed continuing QE the day before Zschaepitz’s tweet. “FED BS Update: FED increases balance sheet by $4BN ($3.3BN “other assets”) the same week that CPI prints 9.1%,” Occupy the Fed wrote. “USTs up $1.1BN and MBS flat despite supposed QT plans. FED is clearly serious about fighting inflation,” the Twitter account sarcastically added.

Since years, the Federal Reserve has been accused by many of creating unprecedented booms or busts in American and international economies and bailing out mega banks. 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.

This story contains tags
CPI Analysts, CPI Critics, Economists, Fed Federal Funds Rate Federal Reserve, Forecasting Firm Holger Zschaepitz. Inflation rate Jerome Powell, Larry Summers. LH Meyer, LH Meyer economics. Monetary Expansion, Money Supply, Occupy Fed, Occupy Fed movement, Peter Schiff. QE, QT. Quantitative easing, Recession. US Central Bank. WSJ articles

Do you agree with the recent WSJ report claiming that the Fed can stop shrinking its balance sheets? What do you think about the accusations that say the U.S. central bank hasn’t shrunk the balance sheet much at all? Comment below and let us know how you feel about the subject.

Jamie Redman

Jamie Redman, a Florida-based financial journalist and news lead at Bitcoin.com News is Jamie Redman. Redman is an active participant in the cryptocurrency community from 2011. Redman is passionate about Bitcoin and open-source codes. Redman has contributed more than 5700 articles to Bitcoin.com News since September 2015. These articles are about disruptive protocols that are emerging.




Images CreditsShutterstock. Pixabay. Wiki Commons

DisclaimerThis article serves informational purposes. This article is not intended to be a solicitation or offer to sell or buy any product, service, or company. Bitcoin.com doesn’t offer investment, tax or legal advice. The author and the company are not responsible for any loss or damage caused by the content or use of any goods, services, or information mentioned in the article.

Get more Crypto News at CFX Magazine