As we debate cadence of rate cuts, balance sheets continue to shrink/Small business still not optimistic

While many debate whether the Fed should cut 25 or 50 bps next week, with 100 bps priced in already into the fed funds futures market, that implies a 50 bps cut at one of the next three meetings. And the market is pricing in 233 bps thru next September. Thus, it's irrelevant whether it is 25 or 50 bps next week, it's well priced in already. What no one is talking about, and ahead of an ECB rate cut this Thursday too, is that central bank balance sheets continue to shrink and is a silent liquidity drain. That said, at least with the Fed, their balance sheet is still so enormous. At $7.1 trillion, it has reversed all the fluff QE that started in June 2020 when after the panic buying during the shutdowns ended, and it slowed to a still high $95b per month. But that compares with a still large $4.16 trillion level in February 2020. Ben Bernanke truly created a monster that has still yet been contained and likely never will. 

The ECB's balance sheet has shrunk by 2.35 trillion euros to the lowest since September 2020 but still 1.7 trillion euros above where it stood in February 2020. 

The Bank of Japan's balance sheet has barely grown over the past year and their pace of purchases will continue to slow thru March 2026 to maybe an eventual end. 

Something to watch because the shrinkage will continue even as rates get cut in most places, but hiked in Japan.