That brings us to today, where the Fed seems to be “unburdened by what has been,” as Vice President Kamala Harris would say. That’s because, unlike in autumn 2007, when the Fed’s balance sheet increased by necessity to achieve its first two rate cuts, its balance sheet has decreased since beginning cuts this past September. This is just continuing the monetary tightening the Fed began in 2022 when its balance sheet peaked at $8.9 trillion. Through August of 2024 it has reduced its balance sheet to $7.1 trillion and kept on reducing it right through its September and November rate cuts to $6.9 trillion, where it stood as of its November 21, 2024 release.
So, the Fed is lowering the federal funds rate while decreasing the money supply. So, is it loosening or tightening? One could make an argument either way and it gets even more complicated than that.
Due to the repo and reverse repo policies it is almost impossible to tell what the central bank is actually doing. There are now three variables they are dealing in. No doubt, it is to befuddle the populace so they do not know why their money is losing value by the minute. It is like three card Monty and the peas in the cups, a scam of the gullible.