 The Mises Institute has a new free book for minor issues fans, Dr. Guido Hulsman's How Inflation Destroys Civilization. Learn how inflation isn't only making us poor, it's harming our culture, meant a well-being, and the moral foundations of civilization itself. Get your free copy today at Mises.org slash Issues Free. Hello and welcome to another episode of the Minor Issues Podcast. I'm Mark Thornton at the Mises Institute. Everybody on Wall Street is begging for the Federal Reserve to cut interest rates. They say money is too tight. Mortgage rates are too high, they complain. Refinancing isn't available for commercial real estate loans. Many mumble. Politicians are now starting to chime in thusly. Senators Brown and Warren, for example, were calling for rate cuts by the Federal Reserve. But despite all these pleas, the Federal Reserve stayed pat today. That doesn't sound like the Fed. They are in the business of printing money in various ways. That's pretty much all they do. Sure, they raise and lower interest rates, but it's money printing that makes that happen, too. Is the Fed just a bunch of tight wads lately? Only recently has the Fed actually shrunk the money supply for the first time in a generation. The reason they are doing that is because they ignited too much price inflation from printing too much money during COVID. The one rule of the Fed's game is that most people lose no matter what the Fed is doing. For a few people, COVID was like a manic wealth creation party where every investment skyrocketed, doubling on average. While the rest of us were being locked down and being forced to be jabbed. Now, after inflation is not transitory after all, the Fed is being, quote, higher for longer. And yet, the S&P 500 stock index is a little higher than its COVID peak. So what gives? Well, the Fed is running tighter monetary policy in two respects. They did increase their policy interest rate, which means mortgages, business loans, credit card interest rates are higher. The same thing for certificates of deposit and money market mutual fund. This caused the regional bank failures and it's turned the balance sheets of banks, companies, and even the Fed itself upside down. Their assets, all their bonds have actually lost money. The Fed has also reduced their balance sheet a little bit. This means that they are selling bonds such as government bonds, mortgage, back securities, agency bonds, etc. that they have lost money on. But don't worry, the taxpayer will pick up that tab as well. Whoever buys the bonds gives up cash and reserves that otherwise would be used for private investment, draining credit from private markets. The amount of tightening, however, has been relatively small and they are already talking about curtailing quantitative tightening. Among the many things the Fed is silent on and Wall Street is also mute is the acts of the Fed behind the curtain in activities or policies using non-traditional policy levers. The big one is what's called reverse repo purchases or agreements. This is very complicated accounting operation that makes the old shell game scam where you have to guess which shell the marble is under, look like child's play. The Fed started the game in 2021 selling these repo agreements to banks withdrawing liquidity from banks with a promise to return the liquidity plus an interest return to the banks in the future. By mid 2022, they had taken almost $2.5 trillion out of the market. That amount stayed about the same for one year until about mid 2023 when stock and bond markets started to crater. That's when they started returning the liquidity to the market, unwinding these reverse repo agreements. There's only about $600 billion in reverse repos left of the $2.5 trillion that the Fed had at its peak. Although rarely mentioned, reverse repos were a major aspect of the Fed's tightening and since mid 2023 have been a powerful tool for easing monetary policy. Jay Powell's tighter for longer stance was not quite true, as this has been a nearly $2 trillion monetary injection. That figure completely swamps the Fed's quantitative tightening program that is supposed to sell off much of its holdings of treasury securities and agencies bonds. But it's actually done very little to reduce the overall Fed's balance sheet. If you compare their reverse repo agreements with the quantitative tightening program, it would seem that they first cooled off the stock and bond market and the unwind of these reverse repos since the beginning of 2023 has helped stimulate the stock market to new highs and save the bond market. So behind the scenes, the Fed has really not been a tightwad after all, but has actually been engaged in monetary easing for quite some time.