The US Fed has finally stopped printing money to support its economy amid the pandemic-induced crisis. What is more, the regulator is planning to withdraw dollars that were pumped into the market during the virus outbreak.
In March 2020, the Federal Reserve launched its “magic money machine” to inject $4.4 trillion in the US economy, wildly buying assets. As a result, the regulator’s balance sheet swelled to a record of $8.8 trillion. In fact, the size of the balance sheet is still increasing, though at a slower pace. Thus, in December, the regulator bought $90 billion of bonds, in January - $60 billion, whereas in February – just $30 billion. Jerome Powell personally announced the reduction of the balance sheet, saying that it would be considerable. Analysts at The Goldman Sachs suppose that the program will be launched in summer. The volume of quantitative tightening is expected to be $2-2.5 trillion. In other words, one half of the earlier printed money will be withdrawn from the economy. “This time, after the Fed’s gargantuan QE during the pandemic, JPMorgan Chase & Co. foresees a more aggressive pace for the coming QT, of $100 billion a month,” Bloomberg writes.
Actually, the Fed may start from small operations worth $20 billion a month and expand them to $90 billion. According to estimates, the regulator’s balance sheet may slide to $6 trillion by the middle of the 2020s that stands for 20% of GDP. Notably, today, it totals 36% of GDP.