The Federal Reserve has been jawboning their intent to unwind their almost $4.5 trillion balance sheet, nearly all of which is either Treasurys or mortgage-backed securities.

The Fed’s Balance Sheet has pretty much been on hold (treading water) since 2014 and the end of QE3, their third round of asset purchases.

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But the System Open Market Account (SOMA) report from 9/13/2017 shows that The Fed actually added around $15 billion to its balance sheet.

soma091317So, no balance sheet unwind yet.

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Remember, The Fed’s notion of inflation (US Personal Consumption Expenditure Core Price Index YoY) remains under their target rate of 2% at 1.40% YoY.

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And core CPI growth YoY is at 1.7%, also under the 2% target.

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And with asset prices such as for housing exceeding wage growth by over 2x, The Fed has quite a bit to consider before pulling the handle on the balance sheet unwind.

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The US Treasury 10Y-2Y curve slope has declined from around 280 basis points in 2010-2011 to under 82 basis points today.

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Here is inflation that is hiding that The Fed doesn’t want to consider.

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