10/29’s FOMC meeting could quietly mark the end of the quickest/steepest balance sheet run-off in modern history.
The Fed’s total assets (WALCL) have fallen $2.39 trillion since 2022, a –26.6% drawdown over 1,288 days, the steepest and fastest decline ever recorded. For comparison, the 2015-2019 QT cycle only reached -16.8% over nearly five years (granted the bulk of the downwards move was backloaded to 2018).
The Fed’s balance sheet represents systemic liquidity, aka the base layer that feeds every market: Treasury collateral, repo funding, bank reserves and risk appetite across equities and crypto. When the Fed’s balance sheet shrinks, liquidity drains from the system. When it expands, liquidity flows outward again.
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