By Daniel Amerman – Re-Blogged From Gold Eagle
The Federal Reserve is currently communicating to the markets that it will likely pivot, and pause two strategies. The first pivot is to stop increasing interest rates. The second pivot is to stop unwinding the Fed balance sheet.
While the interest rate pause is getting the most attention – the balance sheet pause could be the most important one for investors over the coming years.
As explored herein, the impact of pausing the unwinding the balance sheet is to create a new floor at about $4 trillion in Federal Reserve assets. And if the business cycle has not been repealed and there is another recession – the Fed fully intends to go back to quantitative easing, potentially creating more trillions of dollars to be used for market interventions, and to stack another round of balance sheet expansion right on top of the previous round.