$ATOM
The Federal Reserve (the Fed) has been actively reducing its balance sheet, a process known as quantitative tightening, by selling and letting its acquired assets mature. This quiet move, largely overlooked due to investor focus on interest rate changes, has shrunk the Fed's holdings from a peak of $9 trillion to $6.6 trillion. This adjustment brings its balance sheet, relative to GDP, back to April 2020 levels, and notably, the US now has the smallest central bank balance sheet as a percentage of GDP among major economies. This matters because the previous expansion of the balance sheet injected excess liquidity, inflating asset prices across stocks, real estate, and crypto. The current shrinking of the balance sheet implies less liquidity and potential downward pressure on prices, though this effect is presently masked by market optimism for future rate cuts.
