Update on the Federal Reserve Balance Sheet

Summary

The Federal Reserve’s balance sheet update shows a continued reduction, with the total size dropping to approximately $6.57 trillion in January 2026 from a previous $6.64 trillion . This continues the trend of quantitative tightening (QT) from a peak of around $9.1 trillion in 2022 . The balance sheet had fallen to $6.54 trillion by the end of December 2025 . This ongoing reduction occurs as Fed officials like Philadelphia Fed President Harker signal potential future rate cuts contingent on cooling inflation AnueSec, and after the release of the latest Beige Book e公司.

Impact Analysis

So they’re still on autopilot with QT. The balance sheet continues to shrink, now down to around $6.57 trillion . This is the classic disconnect I see right now: the market is fixated on the timing of future rate cuts, especially after officials floated the idea AnueSec, but they’re ignoring the persistent liquidity drain from quantitative tightening. While everyone is watching the Fed funds rate, the balance sheet reduction is a constant, quiet headwind for risk assets. It’s basically the Fed talking dovishly on rates while its balance sheet acts hawkishly. This makes the environment trickier than a simple ‘pivot’ narrative suggests. Even with rate cuts, the overall liquidity picture won’t be as accommodative as the market seems to be pricing in. This reinforces a cautious stance on equities for now.