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What are the available options for the Federal Reserve to reduce it's?

A large(?) balance sheet has lots of assets and lots of liabilities. The assets are things like US treasury bonds and collateralized debt obligations that the Fed bought up in order to put money into the economy for various reasons. Five or six years of stimulus has resulted in large increases in assets and corresponding liabilities. Remember that the liabilities are basically money in the economy. There is no real reason to shrink the Fed's balance sheet. Doing so would mean selling bonds, driving interest rates higher, and pulling money out of the economy. High interest rates and tighter money usually hurts the economy. As long as there's no inflation, there's no limit to the size of the balance sheet. When we start to get a little inflation, THEN things will get interesting. All that money the fed has been pumping out could result in high inflation if money velocity picks up in a more vibrant economy. The Fed will fight inflation, which will shrink its balance sheet. But its absolute size will still not matter.

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