Summary
It appears that the Fed will likely pause the slow unwinding of its balance sheet in 2019, establishing a new floor of around $4 trillion in assets.
The Fed fully intends to use new rounds of quantitative easing as needed in future recessions, which would stack new expansions upon the current one.
Assuming a 2020 recession, two scenarios are graphically explored for how large the Fed balance sheet could grow, and when this could happen.
The Federal Reserve is currently communicating to the markets that it will likely pivot and pause two strategies. The first pivot is to stop increasing interest rates. The second pivot is to stop unwinding the Fed balance sheet.
While the interest rate pause is getting the most attention - the balance sheet pause could be the most important one for investors over the coming years.
As explored herein, the impact of pausing the unwinding of the balance sheet is to create a new floor at about $4 trillion in Federal Reserve assets. And, if the business cycle has not been repealed, and there is another recession, the Fed fully intends to go back to quantitative easing, potentially creating more trillions of dollars to be used for market interventions, and to stack another round of balance sheet expansion right on top of the previous round.
http://seekingalpha.com/article/4241916-stacking-next-qe-top-4-trillion-fed-floor
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