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What do you mean? Fed has been lowering rates and reducing the balance sheet for the last 12 months: https://fred.stlouisfed.org/graph/?g=1Mcbz https://fred.stl

• JumpCrisscross 1y ago
  > Fed funds/OMOs and balance sheet are separate tools Fed funds is a market rate. OMO stands for "open market operations," i.e. buying and selling assets. Guess where assets bought and sold wind up? > throughout 2022. Fed reduced balance sheet while hiking target rate Yes. It sold bonds to push the price down and thus, causally, yield up. Yield is another word for rate. The Fed hikes rates by selling assets. Selling assets shrinks the balance sheet. It lowers rates by buying assets. Buying assets grows the balance sheet. What it can't do, at least not in net effect, is shrink its balance sheet while lowering rates. (The Treasury can do this because the Treasury can create and destroy money more freely.)
  • CGMthrowaway 1y ago
    I have overcaffeinated and said the wrong thing. What I meant was: What do you mean? Fed has been lowering rates and reducing the balance sheet for the last 12 months: https://fred.stlouisfed.org/graph/?g=1Mcbz https://fred.stlouisfed.org/graph/?g=1Mcbz
• ericpauley 1y ago
  There are two sets of rates at play here, short-term OMO rates (which the Fed talks about in terms of target rate) and long-term rates (which are directly impacted by the Fed balance sheet). At the end of the day they're both rates, and nobody sophisticated is going to be fooled if only the short-term rates go down.