In the course of December and January, the balance sheet of the U.S. Federal Reserve (Fed) expanded by $186.7 billion to a total of $4.02 trillion. That policy reversal came after an impressive $244.6 billion liquidity withdrawal between August and November of last year.
Interestingly, the Fed’s apparently puzzling return to aggressive asset purchases continued in an environment of mounting concerns about much-feared and presumably fast-approaching interest rate increases in the United States.
One wonders, therefore, about what the Fed watchers are looking at because there can be no doubt here about the policy intent: The balance sheet (aka the monetary base) is directly controlled by the U.S. monetary authorities. And so is the effective federal funds rate, which finished trading last Friday at 0.07 percent — within a basis point of where it was a year earlier.