The focus on the Federal Reserve’s interest rate decisions is misplaced, as the real influence lies in the Fed’s massive asset holdings, which have significantly expanded since the 2008 financial crisis and the 2020 pandemic.

While rate cuts are anticipated, the Fed’s balance sheet, now at $7.3 trillion, plays a crucial role in shaping financial conditions and inflation. The Fed’s asset purchases have increased the money supply, contributing to recent inflation surges.

Shrinking the balance sheet would help stabilize prices, but current signals suggest the Fed will maintain its large holdings, impacting the broader economy and financial markets.