Why Banks are Reducing Their Balance Sheets

The Federal Reserve's balance sheet, like the balance sheets that record a company's assets and liabilities, keeps track of assets and liabilities. When the Federal Reserve purchases additional securities, cash is injected into the United States financial system. The reason central banks have been talking about reducing the size of their balance sheets to normalize monetary policy and remove some uncertainty in the financial system is that they have to communicate how they plan to manage the amount of money in circulation.

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