So what does it mean when the Federal Reserve says that they are planning to reduce their balance sheet? What's going on? Team: It's Ricky with tackled Solutions You guys asked me to make a video giving an example of this and how the market could react and that's exactly what I'm going to do. I Hope that you learned something new and if you have any questions after this video, please make sure that you either comment down below or feel free to message me either via Discord or via Instagram And that's the first or third link in the description down below. I will never message you through WhatsApp telegram or email. Those are all fake accounts you're going to see.

If you comment on this video, there's going to be fake accounts that reach out to you that pretend to be me. My accounts are always verified with a check mark and I will never reach out to you asking for money plain and simple. So let's go ahead and get right to it. So one of the reasons this is so important is that well, as we've seen, inflation has consistently came down month after month went from 9.9.1 percent all the way down to our recent 6.5 based off of that CPI Data report the market based off of recent patterns.

If we look at this one hour time frame since January 6th has been on the consistent Bull Run Uh, the the big concern: When the Federal Reserve originally announced that it was going to reduce its balance sheet if you look back to when they were actually doing that, um, you know, I Believe they did a little bit of um for the first couple of months of that actual reduction. Uh, but they are nowhere close to where they stated that they're going to be. So for those that are not aware, uh, back in August, they announced that they're going to reduce their balance sheet by 95 billion dollars a month. And for those that are unaware of what that means is the Federal Reserve has this balance sheet where most of its liabilities are made up of the currency that's in the market.

Most of its assets are made up of treasuries, uh, treasury bonds and or mortgage-backed securities. This is where the the reduction begins. They pretty much are stating that they're going to reduce their assets by up to not every single month, but up to 95 billion every single month. Very simple.

What do you think is going to happen if you begin to sell off all of your assets, right? But your liabilities stay the same. There's some risk there, right? Obviously, the stock market's not going to like that. And one of the things that I wanted to share with you guys is a lot of the 95 billion or up to the 95 billion every single month. What does that even look like, right? Well, they said up to 60 billion of that is going to be made up of Treasury bonds.

Uh, and 30 billion of that is going to be made up of mortgage-backed Securities The biggest concern was the mortgage-backed Securities Uh, Obviously the real estate market with super high interest rates pretty much made everything that it gained back in 2021 and 2020. Uh, kind of correct itself, right? Real estate market was was not as hot as it was before. It was no longer a seller's market. it was becoming more of a buyer's market we were seeing month after month except for this last, uh, and most recent, uh, pending home sales report or uh, pending home sales report.

Now we're seeing things begin to pick back up and I'm sure if you're in the real estate market, you're seeing this happen yourself. But the big concern is that if they begin to sell off and or reduce the mortgage-backed Securities on the balance sheet for the Federal Reserve this will most likely only cause interest rates on mortgage side of things. uh to Skyrocket right? And and uh, now finally seeing the economy pick back up I mean there is no better time to begin to load off right? And this was kind of the concern that I had when people were saying like hey, Ricky Isn't it great news that inflation is finally coming down! We went from 9.1 all the way down to 6.5 And if you've noticed, every single month, we've been dropping every single month, right? consistently since we peaked at 9.1 percent. My concern now is well, now that we've been on a steady decline for inflation, it's looking.

It's progress. It's not perfect, but it's progress now that the market has gone up ever since. January 6th, right? We're off to a great start for 2023. In comparison to 2022, you have to give credit where it's due.

What better time to begin to try to kind of like affect the market, maybe in a negative way when it could actually take a hit right if the market was at 52 week lows, if it already looked weak, if it already looked uncertain if inflation wasn't coming down. And then on top of that, the Federal Reserve is like, hey, and we're going to begin to reduce up to 95 billion every single month now, right? Um, you know that's going to really affect the market in a negative way. and I wanted to show you this. Uh, because when looking at the actual credit and liquidity programs right on the Federal Reserve website, you can see that the reduction has started right from from when they announced it, but it's nowhere close to where they want it to be.

and if we actually look back to examples of when there was forms of quantitative tightening which is again, this reduction of the balance sheet, It was happening back in late 2017 all the way up to 2019 and we can see that the Federal Reserve was again loading off on their actual assets, right? We saw some a slight load off and I wanted you guys to be able to see how this affected the overall market so we can go back to the week chart on QQQ and we can go back to Like around 2018 to 2019 and see how it influenced the overall Market But you can see that from when they started, the market was still indicating signs of an uptrend right early 2018. The market corrected itself a little bit. it continued to rally and then it was around late 2018 to early 2019 that the market actually fully sold off right? And then we picked right back up. Covet hit.

We rallied and that I want you to pay attention to this right? Look at this date right? This is March of 2020. March of 2020 if I'm not mistaken. Yep, right around March of 2020 we see this huge push-up and this is something that not enough people talk about. So we're concerned about loading off on 95 billion dollars up to 95 billion dollars every single month and that's viewed as very aggressive.

Did you know that during the midst of the pandemic, they were adding over 120 billion dollars every single month to the balance sheet? And this is the thing that people just need to understand is that anytime that the Federal Reserve artificially pumps the market right, they're They're pumping more assets into the market. They're pumping more money into our economy. Obviously, as they begin to pull this money out. Now, yes, the economy should slow down.

Yes, the economy will most likely correct itself and rightfully so. You don't understand that on average, the market grows anywhere from five to seven percent. The economy grows five to seven percent every single year. But when we see huge gaps up like this, when we're concerned of reducing the balance sheet a little bit, and that's a big concern.

But then all of a sudden you're you're talking about. Within six months, we we go from 4.1 trillion all the way up to what is that? 7.1 I Mean it's insane. We literally doubled in just six months. Look at that.

I mean not double, but nearly right. From four all the way up to seven if I'm not mistaken. And then from Seven we've hit all the way to highs of nearly nine, right? Finally, we began to actually correct ourselves. But this is the part That kind of is like so mind-boggling it's like we're always so concerned about.

Well, no, no, no, we we can't reduce the balance sheet. We can't reduce the balance sheet because it's going to slow down the economy. But if we, if we would have never done this in the first place, we would have never had to. Art You know, forcefully correct it because if we artificially pump the market just like we can see how it how this influenced the market, we can see that this is from March of 2020, right? So March of 2020 I Want you to understand this is quantitative easing, right? This is when you're expanding the market.

So this is when you're pumping money into the market into the economy. What happens, right? So this is the whole purpose of this video. What happens when you begin to pump money into the market, right? Just like they did here, right? What happens? Well, markets went up right. If you're pumping more money into the market, most likely more people are willing to spend that money.

The economy grows GDP grows. Sure everyone is happy, But for how long when you begin to pump money into the market, well, what devalues the dollar right? This is where inflation right then gets us to where we were. You know, early last year where inflation was at 40-year highs and we needed to bring down inflation because it hit highs of 9.1 percent. So then we have to raise interest rates, slow down the economy that way.

That's a tool that the Federal Reserve has. and then another tool that they have is reducing their balance sheet. What do you think is going to happen when they begin to reduce their balance sheet just like they did back in 2017 and 2018? Yes, it will most likely affect the market in a negative way if they actually do it though. And that's the concern that a lot of people have is that that the Federal Reserve will not actually do it.

Not up to the 95 billion dollars that they've stated. Um, you know, month over month, 65 billion of that being in treasury bonds and 30 billion of that being in mortgage-backed Securities My big concern would be more on those mortgage-backed Securities especially as we're seeing the real estate market pick back up again. I Think that's where we'll see a big hit that if they really do, you begin to sell off I mean I Uh, it will be I Think the first time in history that if they begin to try to load off of 30 billion dollars of mortgage-backed Securities month over month, they will actually have to not just roll off those 30 billion, but actually try to sell them. That would be if I'm not mistaken the first time in history for the Federal Reserve which again will most likely cause interest rates to rise and again, it's a domino effect.

What happens when interest rates rise. If interest rate tries, it's more expensive to buy a home that's more expensive to buy a home. less people are interested in buying a home if less people are interested in buying a home. Then again, prices are going to drop because if sellers get you know, desperate and they have to lower their price to make it more affordable or more feasible for people to want to, you know, buy buy these properties.

But again, it all. This is all this comes back down to is simply correcting ourselves. That's all this is is. we have to correct ourselves because of what was done in 2020 and it was because of the pandemic.

because the world came to a standstill and the Federal Reserve thought it was again a a good temporary solution to pump money into the market to begin to boost the economy. And it was right. 2020. 2021 was an amazing year.

But then for 2022 and 2023, Um, you know now we're we're wreaking the consequences of all all of that pumping. Anytime that there's a big pump, I mean run with it, right? This is what we've learned from that it's run with it. Don't be afraid to make money like that's when the economy is boosting. That's when we know that we're investing long term.

But then when it pumps and then you begin to see those highs. just understand that it's tempering because it's an artificial pump. and then this is where the correction ends up. you know, following up with Um and this is the part where then we short right.

Um. And that's my concern Now is that now that inflation is actually Um at 6.5 according to the CPI data report. now that the economy seems a little bit stronger than what was originally expected I Feel like the market can now take a hit. the Federal Reserve can most likely now step on the gas when it comes down to this uh, quantitative tightening and actually reduction of the balance sheet hopefully up to the 95 billion dollars and I think that will lead to no longer having month after month a continuous declining inflation rate.

I think now we will see inflation go up or then maybe down one month and then maybe up the next month and then maybe down the next month. We've seen a consistent decline because there hasn't been. that's that quantitative tightening that they originally stated. but now I don't think that's going to be the case.

Inflation is down enough. but I think that they they feel like they have the ground to actually begin to reduce that balance sheet and I think that's where we'll begin to see that consolidation is the best way that I can explain it for that inflation rate month after month. So uh, we do have a commit an up and coming interest rate hike. uh if I'm not mistaken.

February 1st which is going to be Wednesday of this upcoming week I will be live streaming it here on my YouTube channel and all I ask you to do is to subscribe I host it for free for all the people that subscribe to the channel. So make sure you subscribe, turn on your post notifications, Drop a thumbs up on this video. but uh, just to put it very simple, it's what normally happens when there's quantitative reasoning. which is you know you put money into the Market expansion growth, right? Uh, Stock Market Rises Stock Market likes it.

What normally happens when there's quantitative tightening? Well, the opposite, right? there's it's a contraction. Markets tend to correct themselves. Um, in interest rates for mortgages can begin to rise. and then that's where the uh, certainty or the recession headlines begin to arrive, right? So other than that, I just wanted you guys to have a little bit of a better understanding of how much the Federal Reserve wanted to reduce their balance sheet by.

They haven't done so at all. As you can see by that chart that I showed you from their actual website and if they do begin to start I Just want you to understand why the market is dropping right? My, my big part here on YouTube is I Just want you to understand the why I Don't need you to agree with me it's not agreed or disagree I just I want you to understand that if the market is dropping and they announce that they're doing quantitative tightening and they're reducing their balance sheet I Want you to understand why it's again, we're pretty much just Contracting From you know, the expansion that we gained in 2020 and 2021. So yeah, I mean that's that's really just it. So I appreciate your time again.

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