Impacts of the Federal Reserve’s Balance Sheet Expansion
On the latest episode of , analyst Marcel Pechman discusses the impact of the United States Federal Reserve’s balance sheet expansion. Here are the key points:
1. The Federal Reserve inflated its assets by $5 trillion between December 2019 and April 2022.
2. This expansion period coincided with a 38% crash in the S&P 500 index.
3. The Federal Reserve balance sheet surpassed the $8.9 trillion mark during the stock market index’s all-time high.
4. The U.S. Treasury Department has a significant deficit, as the government spends more than it receives from revenues and taxes.
5. The government needs to start rolling some of the debt instead of letting it expire, which may prevent further reduction of the balance sheet.
The Impact on Inflation and Scare Assets
According to Pechman, once the Federal Reserve is forced to expand its balance sheet again, inflation will be significantly affected. Here are the main takeaways:
1. The reduction of the balance sheet has contributed to lowering inflation.
2. Holding scarce assets such as Apple shares, land, gold, and Bitcoin (BTC) is advised to mitigate the impact of inflation.
3. Pechman warns against being fooled by the temporary period of reduced inflation.
Deflation in China and Expectations
Pechman also addresses deflation in China and investor expectations. Here’s what you need to know:
1. Economists believe deflation is a concern in China, as domestic consumption is decreasing.
2. Investors are hopeful that the central bank’s expansion of the balance sheet will bring about positive changes.
Hot Take
As the Federal Reserve is likely to be unable to continue reducing its balance sheet, inflation may rise again. This highlights the importance of holding scarce assets to protect against the impact of inflation. Additionally, deflation in China presents challenges, and investors are eagerly awaiting the actions of the central bank.
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