Normalization Perspective

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It was only about half a year ago that the Federal Reserve abandoned all pretense to “normalize” its balance sheet. As always, it was cloaked in the heavy, ponderous language of the board, as if to suggest this was a wise, thoughtful, and measured choice by a room full of intelligent elders.


What’s extraordinary is how swiftly many months of “normalization” were swept aside. The slow burn-off in the Fed’s balance sheet is shown below with a cyan tint, but they did a hard turn with the above memo, whose aftermath is shown in yellow. And yet that pales in comparison to when the response-to-the-virus kicked in, which is in magenta.


When Ben Bernanke declared years ago that the Fed would never return to a normal policy again, that was probably the only honest thing he said in his entire life.