When it first undertook this “floor” experiment, the Fed’s balance sheet exploded to more than $4 trillion. These payments keep private-sector interest rates from dropping too low. It provides enough funds to satiate the entire banking world, and it seeks to adjust the economy by paying banks more or less interest to hold those funds. Since the financial crisis, the Federal Reserve, like other developed-world central banks, has used a different playbook. A few billion in purchases or sales could move the whole economy, and this meant that the Fed, which operates much like a normal bank, could keep a relatively small balance sheet of under $1 trillion. Before the 2008 financial meltdown, the central bank tried to control interest rates by buying and selling U.S. The Fed’s losses owe to a shift in the way it does business. As Fed-driven inflation becomes the Number One political issue in America, that will change. Few Americans have noticed the huge increase in both the scale and the scope of the central bank or the dangers that it poses to the American economy. Before new trillion-dollar federal spending bonanzas became a regular occurrence, the Federal Reserve’s announcement that it lost over $700 billion might have garnered a few headlines.
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