Powell’s dovish stance aligns with Federal Reserve’s balance sheet increase

Quick Take

Since March 2022, the Federal Reserve, under the leadership of Chairman Powell, has been executing a quantitative tightening policy. The policy, which involves the sell-off of assets, has witnessed the balance sheet of the Federal Reserve shrink by approximately $1.2 trillion, dropping from $8.9 trillion to $7.7 trillion.

However, a granular analysis of recent data reveals an intriguing turn of events. As per the current week-over-week data, the balance sheet instead exhibits a slight increment, swelling from $7.737 trillion to $7.739 trillion.

While it’s just one week’s data, coupled with Powell’s dovish remarks, it indicates a potential fueling of the inflation fire. This development could substantially hinder reaching the 2% inflation target, further complicating the economic landscape.

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