Macro Monday 61 - Fed Balance Sheet Signals Liquidity BounceMacro Monday 61
Fed Balance Sheet Hits Long Term Supporting Trend Line
The Federal Reserve Balance Sheet
The balance sheet is published weekly, typically on Thursday afternoons, and it provides valuable information on the direction of global liquidity and the fed’s monetary policy.
When the Federal Reserve’s balance sheet increases, it means that the central bank is acquiring more assets. This expansion can occur through purchases of Treasury securities, mortgage-backed securities, or other financial instruments. The increase in assets typically leads to greater liquidity in the financial system and can influence interest rates. Conversely, a decrease in the balance sheet indicates asset sales and reduced liquidity
The Chart - FRED:WALCL
▫️ Since April 2022 the Federal Reserve Balance Sheet has reduced from $8.973 trillion to $7.140 trillion (reduction of $1.833 Trillion).
▫️ Right now, the chart has signaled that we have hit a critical diagonal trend line support (red line on chart).
▫️ We have hit this red trend line twice in the past (Sept 2019 & Aug 2008) and on both occasions it bounced from the red trend line and the balance sheet thereafter increased significantly for 2 to 5 years.
If you follow me on Trading view, you can revisit this chart at any time and press play to get the up to date data and see if we have held the line or fallen below it.
What does the following mean to you?
✅High likelihood of interest rate reductions in Sept.
✅Apparent stabilization of the rate of inflation (U.S)
✅A current stable labor market in the U.S
⏳The possibility of the balance sheet bouncing from trend support and increasing from the support line as it did in the past for 2 years+ (Increasing Global Liquidity).
Versus
🚨 The yield curve un-inverting (moving above 0)
🚨 Sahm Rule Triggered
🚨 The marginal increase in the U.S. Unemployment Rate which is consistent with prior recessions.
🚨 U.S. Initial Jobless Claims and Continuous Jobless claims have had increases consistent with pre recession historic activity.
🚨Job openings reducing since March 2022 from approx. 12m to 9m (this would be the largest pre recession drop ever if followed by a recession.
🚨 Warren Buffet sitting on the biggest pile of cash ever.
Does this all say “soft landing” imminent or should we be worried?
In my opinion, we will know by Jan 2026. Its a big window of time, but the timing is the biggest challenge, and if we can take one thing from the above, volatility is guaranteed.
Happy Trading
PUKA
