| Ripple Effect — May 9, 2025
In this morning’s Swan Dive, we noted that the Federal Reserve has started buying 30-year bonds – over $40 billion in the past week alone.
Where is this money coming from? A look at the Fed’s balance sheet suggests that the central bank is using cash, likely from existing maturing holdings.  After peaking at nearly $9 trillion in 2022, the Fed has been shrinking its balance sheet, now down to about $6.7 trillion, or a level last seen in April 2020 during the throes of the pandemic.
2022 also marks when the Fed belatedly recognized its mistake about inflation – being too data-dependent will do that. 2022 marks when the Fed raised interest rates at its fastest pace in 40 years, from 0% to over 5% at the peak, and when the recent downtrend began in earnest.
But look at that trend carefully. The rate of the balance sheet reduction has slowed to a crawl. It may even be on the cusp of trending higher.
If that’s the case, the Fed will join other central banks, which have already been more aggressive about lowering interest rates and opening the monetary spigot.
The chart of the Fed’s balance sheet also shows that, while the central bank can shrink its balance sheet, it has a tough time keeping it below the highs of the prior crisis. So the bank may be nearing the limit of how far down it can shrink its balance sheet.
Investors looking to lock in relatively high bond yields may want to do so over the coming months. A wave of liquidity will crush bond prices, but likely send stocks soaring — and not for fundamental reasons.
It’s also yet another piece of the gold puzzle that suggests still-higher prices for the metal, and why bitcoin’s rally isn’t over yet.
-Andrew | For the last 9 years, Elon has been quietly developing what could potentially become America's most advanced AI Project…
And now he may be set to roll it out by August 8.
One retired Army General predicts the tech behind it will make up "a third of the U.S. military by 2039"...
Morgan Stanley believes it could be worth $30 trillion.
Full details here. | P.S. As always, your reader feedback is welcome: feedback@greyswanfraternity.com (We read all emails. Thanks in advance for your contribution.)
How did we get here? Find out in these riveting reads: Demise of the Dollar, Financial Reckoning Day, and Empire of Debt — all three books are now available in their third post-pandemic editions. You might enjoy one or all three. 
(Or… simply pre-order Empire of Debt: We Came, We Saw, We Borrowed, now available at Amazon and Barnes & Noble or if you prefer one of these sites: Bookshop.org, Books-A-Million or Target.)
Please send your comments, reactions, opprobrium, vitriol and praise to: feedback@greyswanfraternity.com |
Post a Comment
Post a Comment