“It would seem we’ve still got a long, long way to go” sang Phil Collins. I could not help but think of these lyrics as I reviewed the Fed’s balance sheet this morning. While the Fed’s Quantitative Tightening (“QT”), has only just begun, it has an enormous, multi-year project in front of it as it relates to unwinding a portion of its Quantitative Easing (“QE”), effort of the past 14 years.

Fed Assets stood at $910 billion in the summer of 2008 before the Fed embarked on its ill-fated QE journey. If one thinks of the Fed’s QE purchasing effort as a set of stairs with multiple plateaus…

• 1st plateau: reached in December 2008 with Fed Assets of approximately $2.2 trillion.
• 2nd plateau: reached in June 2011 with Fed Assets of approximately $2.9 trillion.
• 3rd plateau: reached in September 2014 with Fed Assets of approximately $4.4 trillion.
• 4th plateau: reached in June 2020 with Fed Assets of approximately $7.2 trillion.
• 5th plateau: reached in March 2022 with Fed Assets of approximately $9.0 trillion.

Recall that the Fed’s QT plan calls for it to trim its balance sheet by $95 billion per month and to reach this run rate by September 2022. That run rate equates to approximately $1.1 trillion per year and does not contemplate the Fed subsidizing fiscal deficits which in of itself creates inflation as it grows the money supply and Fed Assets.

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