Shrinking the balance sheet means that the U.S. government announces a reduction in its balance sheet. This move will lead to a decrease in the amount of relevant money in the market, and the government will make its currency appreciate by making its currency less liquid.
When a country’s inflation rate becomes high, the central bank will implement the policy of shrinking its balance sheet.
The balance sheet will shrink only if employment recovers and the economy can repair itself.
The direct impact of shrinking the balance sheet on the United States is that the circulation of dollars in the market decreases, the interest rate of dollars and the dollar index will rise, and the prices of gold, silver and bulk commodities denominated in dollars will fall.
At the same time, when the Fed sells Treasuries out, the price of Treasuries falls, which in the case of Treasury yields rises.
The impact of shrinking the balance sheet on other countries is that currencies depreciate relative to the dollar, foreign capital flows out of the capital markets of these countries, leading to the contraction of the stock and real estate markets, and the price of government bonds also falls due to the capital outflow, which in turn increases the yield of government bonds.
