A report published by MarsBit, citing analysis from Peter Schiff, says the Federal Reserve has been quietly running a form of quantitative easing since February, despite the broader perception that its balance sheet is still shrinking. The piece says the pace of asset accumulation slowed in recent months and even turned negative in August on a net basis, but ongoing Treasury bill buying remains central to the Fed’s operations.
August Treasury bill purchases remained positive
According to the article, the Fed’s current effort was originally aimed at buying Treasury bills to keep liquidity high. That buying, it says, is still in place. In August alone, the Fed added a net $29 billion in Treasury bills.
The report adds that the overall decline in the balance sheet came mainly from maturing mortgage-backed securities, or MBS, and reductions in 5-10 year Treasuries.
A slower runoff, a much faster expansion history
Looking across a 10-year period and grouping the data by year, the article argues that the contrast between tightening and crisis-era expansion becomes hard to miss. It says the Fed spent four years cutting roughly $2.2 trillion from its balance sheet, then added $3 trillion in just a few months in 2020 and expanded by $4.5 trillion over two years.
For this year, the report says the balance sheet has increased by $90 billion so far. That rise is modest compared with the dramatic moves of past years, but the author’s point is straightforward: the balance sheet is still growing, not contracting, and that makes disinflation harder.
Treasury bill holdings rose by $344 billion over the past year
The article says the most notable line item in the Fed’s recent activity is a $344 billion increase in Treasury bill holdings over the past 12 months. In the author’s view, that increase is too large to dismiss.
It also raises a question about why the Fed has focused so heavily on bills. Treasury bills are usually the most liquid segment of U.S. government issuance, the piece notes, which makes the central bank’s liquidity-driven intervention harder to explain.
Weekly data showed a steady buying pattern
On a weekly basis, the report says the pattern of continued Treasury bill purchases is visible across the chart it references. The suggestion is that this was not a one-off monthly adjustment but a sustained operating pattern.
Emergency facilities tied to the SVB fallout have dropped to zero
The article also breaks down lending and repo balances. These facilities were put in place after the collapse of Silicon Valley Bank, or SVB.
It says all related balances have now fallen to zero. Even so, the piece adds that the Fed wants to see greater use of the repo market through the Standing Repo Facility, or SRF.
Yield ranges broke in June
The report says Treasury yields had been trading in a relatively stable band since September 2022, mostly between 3.25% and 4.75%. That changed in June. The 30-year yield broke above 5%, while the 10-year moved above 4.5%.
The author argues this is why the Treasury stepped into the market, saying officials had seen cracks forming in the bond market and the risk of broader fallout.
The same section says yield-curve spreads have started widening again, which the report interprets as investors demanding more compensation to lock up dollar funding for longer periods.
A comparison of the current curve with the curve one month earlier and one year earlier also points to renewed steepening, the article says, making Treasury financing operations more difficult.
Foreign demand for Treasuries has softened
One of the report’s biggest concerns is weaker international interest in U.S. government debt. It says total foreign holdings have fallen from a first-quarter peak of $9.4 trillion. The article notes that the data are lagged and run only through June.
In the author’s framing, that matters because the U.S. Treasury is issuing more debt while foreign buyers are not stepping in at the same pace.
By country, China’s Treasury holdings were listed at $630 billion, down $100 billion from a year earlier. The United Kingdom now holds more Treasuries than China, the article says. Japan’s holdings have been broadly flat over the past decade, fluctuating between $1 trillion and $1.25 trillion. The report adds that Japan cannot become a seller without increasing stress in the market, and says this is one reason the United States has intervened in foreign exchange markets.
A long-term view of the balance sheet
From a broader historical angle, the article says the Fed’s use of its balance sheet has changed fundamentally since the global financial crisis. What stands out in the chart it cites is the contrast between rapid expansion and slow reduction.
The author’s conclusion is that the Fed cannot realistically shrink the balance sheet back to earlier levels. At most, it can trim modestly between crises, then expand aggressively again when the next disruption hits. Based on the current path, the article says the next crisis may be closer than many expect.
Kevin Warsh says the 2% inflation target is fixed
The second half of the piece turns to remarks from Federal Reserve Chair Kevin Warsh at Jackson Hole. According to the article, Warsh said last Friday that the long-standing 2% target for the personal consumption expenditures price index, or PCE, is a 「firm, fixed target」 and that price stability 「will not happen automatically... It is the job of the Fed to deliver price stability, with no excuses.」
The article says gold touched an intraday high of $4,612 an ounce on Thursday, a move it presents as a reminder that investors are still hedging against the risk that inflation remains well above the Fed’s comfort zone.
It also says PCE inflation is running at 3.7% year over year, with a six-month annualized pace above 4%. Even after cooling from post-pandemic highs, 54% of items in the PCE basket rose more than 3% over the past year, compared with 32% before the pandemic. Warsh was quoted as saying the blame for 「65 months of persistent high inflation」 rests entirely with the central bank. Comparable CPI data, the article adds, point to the same sticky pressure.
Jobs, investment, communication and balance-sheet policy
The report says Warsh described the labor market as broadly consistent with full employment. Business investment in equipment and intangible assets was said to be growing at a 9% pace, with more than half tied to artificial intelligence projects. Profits for S&P 500 companies were described as growing by more than 20%, with margins still “quite high.” Corporate bond spreads and leveraged loan spreads were said to be trading near the low end of historical ranges, while July’s Senior Loan Officer Survey showed some easing in standards for commercial and industrial lending.
On communication, Warsh warned that routine forward guidance can trap policymakers and markets in a hall of mirrors, where each side reacts to the other’s signals instead of the real economy.
He argued that short-term interest rates should remain the main tool of monetary policy. Balance-sheet experiments and other unconventional measures, the article quotes him as saying, should be used sparingly or not at all outside special circumstances. Referring to the pre-quantitative-easing monetary tradition, he also said that 「money matters」 and urged the Fed to pay attention to money created by the central bank and the wider financial system.
AI investment and inflation hedging
The article says Warsh also described artificial intelligence as a “new variable” that could affect productivity. It adds that two leading AI labs have annualized token sales above $100 billion, up more than 500% from a year earlier. Faster productivity growth could help restrain prices over the long run, the piece says, but the pace of AI-linked investment has also stirred overheating concerns, something it ties to the recent rise in gold.
Whether the Fed can bring inflation under control without launching another round of unconventional policy remains an open question in the report. For now, it says, investors appear to be using continued gold holdings and purchases as a hedge against that uncertainty.