On October 14, Fed Chair Jerome Powell delivered a speech about the Fed’s balance sheet, and to start, he joked that this topic is comparable “to a trip to the dentist, but that comparison may be unfair—to dentists.” As people who frequently write about this topic, we empathize.

Hardly anyone cared about the Fed’s balance sheet prior to the 2008 financial crisis, but the Fed’s decision (in December 2008) to start purchasing long-term Treasuries and agency mortgage-backed securities (MBS) changed all that. By 2014, the Fed had engaged in three separate rounds of these purchase programs, known as quantitative easing (QE), and it held more than five times the securities it had prior to 2008. While the Fed eventually began a slow runoff of these securities after 2014, it engaged in massive securities purchases during the COVID-19 pandemic, bloating the balance sheet far above the previous peak.

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