Trouble is, the correlation of changes in the Fed’s balance sheet to changes in asset prices are unambiguous that Powell is either unwittingly wrong or, more likely, knowingly collapsing an asset bubble that was in large part created by the Federal Reserve itself.
Fed Held Treasury’s
To set the table, the chart below shows the total Federal Reserve holdings of US Treasury’s (blue line) and weekly changes (yellow columns) from 2003 to present. The August ’07 through January ’09 period is noteworthy as the only period with a like Treasury holding drawdown to what we are presently witnessing. The subsequent highlighted areas show the periods of no growth in Treasury holdings, or most recently the outright declines. The most recent period represents just $230 billion reduction of a proposed $1 trillion total “normalization” in Treasury holdings.
Perhaps the reason equities tanked when Powell suggested that the Fed’s plan to normalize its balance sheet was on “auto-pilot” can be seen in the chart below. Red line is the Wilshire 5000 (representing all publicly traded US equities) and yellow columns are the weekly change in the Federal Reserve’s holdings of Treasury’s. On the five occasions (highlighted again) since 2007 that the Fed has ceased buying or outright sold Treasury’s, the Wilshire has gone into convulsions or outright cracked lower.
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