Fed balance sheet/Unlike Fed, BoE mentions Middle East risks/Company comments/Other

It wasn't until the Powell presser was almost over did he finally get a question on the balance sheet and he didn't have much new to reveal other than it will be a key topic of discussion on March 20th, though we'll likely hear from Fed members before then. Regardless, it's clear that the Fed will be left with a still massive balance sheet when all is said and done with QT. Let's assume the size of balance sheet stops shrinking at about $7 trillion vs $7.67 trillion as of 2/24, that would be up about 68% from where it stood in February 2020. For perspective, nominal US GDP is up 29% since Q1 2020. 

The reason this monster of a balance sheet will remain is because banks are either forced to hold more reserves because of regulatory reasons, and/or they are still dealing with too much duration exposure and want to hold more cash, and/or bank lending is anemic and they are enjoying their 5.4% interest on excess reserves from the Fed with no risk. Bottom line, the Fed's footprints in the US Treasury will remain large for a while. 

There was not one question or even speculation on the part of Powell to the situation in the Red Sea and what the flow thru on transportation costs and goods prices could be but it goes to the point of 'sustainability' in terms of confidence in having not just inflation get to around 2%, give or take, but stay there. See below that the Bank of England specifically cited the Middle East risk to the inflation story.

By the way, ahead of yesterday's stock market sell off, the bull boat got really full again ahead of it. Investors Intelligence saw the 40 pt Bull/Bear spread that is extreme. Bulls rose to 57.7 from 52.9 while Bears fell to just 16.9 from 17.1. That Bull read is the most since the summer of 2021 and the Bears the least since the summer of 2021. Also, today's AAII (taken before yesterday) saw Bulls jump by 9.8 pts to 49.1, only a few pts from the highest level also since 2021. Bears slipped by 1.6 pts to 24.5. In mid December it got as low as 19.3. Seen last weekend, the Citi Panic/Euphoria index got more euphoric. 

Fed's Balance Sheet as % of GDP as of Q4 data

Now let's get to New York Community Bank. From people I've spoken to and stuff I've read, this bank was not well managed with too much exposure to office and rent controlled apartments, a soft balance sheet  not prepared at all for the higher capital requirements of passing $100b in total assets. So, maybe bank specific but either way, this situation gets to my continued point that the lag is long when it comes to adjusting to this higher for longer interest rate world where every day someone's loan needs to be refinanced at a much higher rate than the rate on the loan coming due. Death by a thousand economic cuts still holds with particular pain to still be felt in commercial real estate. A higher interest rate environment certainly exposes the rot in an economy that built up and that easy money always covers up.