What happens next with the Fed’s $9 trillion balance sheet?

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Since the pandemic began, the nation’s central bank has aggressively printed trillions of dollars to keep the U.S. economy afloat. Doing so has ballooned the Federal Reserve’s balance sheet to nearly $9 trillion.

Fed officials, acknowledging the rising risks posed by inflationary pressures, are now starting to think about whether or not they can move to shrink the central bank’s holdings next year.

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“I have no idea what a normal balance sheet looks like anymore,” said Federal Reserve Governor Christopher Waller on Dec. 17.

Since the depths of the pandemic, the Fed has been buying U.S. Treasuries and agency mortgage-backed securities in the open market. Those purchases, in a process often referred to as “quantitative easing,” serve as a signal to markets that the Fed is serious about its intention to keep financing conditions loose.

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