The Fed's balance sheet has decreased by $17.65 billion over the week.
This reduction was preceded by growth/pauses throughout April. But today's report made it clear that the process of quantitative tightening continues.
Let us remember Powell's words during his loud speech in Chicago in mid-April:
"The Fed's reserves are still abundant. We are not close to the point where the Fed will completely stop quantitative balance sheet reduction (QT)."
The Fed is not lowering the rate (a pause in May is a solid prospect), it is reducing the balance sheet. It's very unlikely that Trump will be able to remove Powell.
The Trump administration still has only one effective mechanism to flood the economy with money - bond buybacks, which Arthur Hayes wrote about in his latest essay.
The Treasury issues new bonds and uses the proceeds to buy back old, illiquid ones. This reduces volatility and frees up liquidity for funds operating on the difference between spot and futures treasuries. The mechanism is not formal quantitative easing (QE), but its effects are similar: it increases borrowing capacity, lowers margin requirements, and creates an influx of dollars into the system.
As for the Fed's balance sheet, no matter how Powell and Co. hold on, the decline stemming from the 2023 banking crisis is losing momentum. This is visually evident. Plus, at the last Fed meeting, it was decided that starting in April, the pace of QT will slow down.
The chances that the balance will significantly decrease in 2025 are minimal. Throughout the entire period of balance sheet reduction from March-April 2022, it has not been possible to remove even half of what was printed to combat the consequences of COVID-19.
Further depreciation of the dollar and the rise of BTC against the USD still seem to be an inevitable long-term scenario.
