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During the COVID pandemic, the Fed expanded its balance sheet to almost $9 trillion through three different iterations of large-scale asset purchases, often referred to as quantitative easing (QE).
Quantitative easing (QE) is a monetary policy action where a central bank purchases predetermined amounts of government bonds or other financial assets in order to stimulate economic activity. [1] Quantitative easing is a novel form of monetary policy that came into wide application after the 2007–2008 financial crisis.
Yahoo Finance’s Brian Cheung explains how the Fed might respond to balance sheet trends in 2022 as it winds down purchases of mortgage-backed securities and Treasuries.
Ben Bernanke called this approach "credit easing", possibly to distinguish it from the widely used expression Quantitative easing. In a March 2009 interview, he stated that the expansion of the Fed balance sheet was necessary "...because our economy is very weak and inflation is very low.
What’s next: Wells Fargo economists expect a recession sometime next year to prompt the Fed to cease quantitative tightening around October 2024, leaving the balance sheet at around $7.2 trillion.
This is an attempt to do what Quantitative Easing (QE) tries to do, without printing more money and without expanding the Fed's balance sheet, therefore hopefully avoiding the inflationary pressure associated with QE. [4]
Wall Street analysts are pulling forward their expectations for when the Fed would start “quantitative tightening,” the process of shrinking the central bank's balance sheet.
When the balance sheets of investment banks became very stressed during the 2007–2008 financial crisis, due to excessive use of repos, the Fed had to bypass the banks and employ direct quantitative easing; the "Bernanke put" and the "Yellen put" used mostly direct quantitative easing, whereas the "Powell put" used both direct and indirect forms.