On the latest episode of Macro Markets, analyst Marcel Pechman explains the impacts of the United States Federal Reserve’s balance sheet, breaking down how the Fed inflated its assets by $5 trillion between December 2019 and April 2022. Pechman notes that the expansion period coincides with a 38% crash in the S&P 500 index. Moreover, the Federal Reserve balance sheet surpassed the $8.9 trillion mark right as the stock market index reached its 4,800-point all-time high.
The problem, according to Pechman, is that the U.S. Treasury Department has a huge deficit, as the government spends more than it gets from revenues and taxes. Consequently, it needs to start rolling some of the debt instead of letting it expire, so odds are it won’t be able to continue reducing the balance sheet any longer — something that has been a huge contributor to lowering inflation.
Ultimately, inflation will feel the biggest impact once the Federal Reserve is forced to expand its balance sheet again, Pechman argues. He advises that those holding scarce assets such as Apple shares, land, gold and Bitcoin (BTC) should hang on tight and not be fooled by the momentary period of reduced inflation.
In the show’s next segment, Pechman covers deflation in China, which economists believe is an issue. Domestic consumption is decreasing, and it seems investors expect a miracle from their central bank’s expansion of the balance sheet.
In essence, Pechman argues there are many red flags coming from China. If you want to know whether Pechman believes this is a risk for international economies and what will happen to stock markets and Bitcoin, watch the latest episode of Macro Marke on the Cointelegraph Markets & Research YouTube channel.
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