Fed Balance Sheet Review – Treasury Deposits Started Shrinking Last Week

The Treasury’s balance at the Fed has begun to decline from the record level it reached in early May as tax payments due on April 15 continued to be processed. The government is now spending the massive tax windfall. With tax demands now lower, the government’s spending should give the economic data a little bump in May and June. How much of a bump will depend on how much the Treasury spends, and how much it maintains in its account at the Fed. The larger that account is, the greater the withdrawal of funds from the banking system. It acts as a form of tightening, but will only be material at the level of hundreds of billions. Less than that won’t have an impact.

The Fed’s balance sheet will remain flat until the Fed acquiesces to the fact that it needs to begin shedding assets in order to raise interest rates. Here’s what you need to know about that along with a summary of the bubble finance conditions in the banking system.

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Lee Adler

I’ve been publishing The Wall Street Examiner and its predecessor since October 2000. I also provide analysis and charts for David Stockman's Contra Corner which I developed for Mr. Stockman. I’ve had a wide variety of finance related jobs in the past 44 years, including a stint on Wall Street in both analytical and sales capacities. Prior to starting the Wall Street Examiner I worked as a commercial real estate appraiser in Florida for 15 years. I also worked in the residential mortgage and real estate businesses in parts of the 1970s and 80s. I have been charting stocks and markets and doing analytical work since I was a teenager. My perspective is not of the Ivory Tower. It is from having my boots on the ground and in the trenches of the industries that I analyze and write about today. 

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