Value of assets on the balance sheet of the Federal Reserve
- There are a number of factors that suggest we may be in a "higher for longer" period with respect to interest rates and inflation. Chief among them is the fact that the Federal Reserve has just begun its process of Quantitative Tightening.
- If the Fed becomes more aggressive selling Treasuries as it unwinds its $9 trillion balance sheet, it could have the effect of raising rates above where they'd otherwise be, just as we saw artificially low rates during the era of Quantitative Easing.
- Other potential inflationary drivers are the reopening of the Chinese economy, the continued chilling of the West's relationship with China, and the possibility of escalation by Putin in Ukraine and the spillover effects that would have on global energy and agricultural markets.
Chart source: Statista 2023
https://www.statista.com/statistics/1121448/fed-balance-sheet-timeline/