Opinion: The Federal Reserve is highly likely to resume balance sheet expansion before the end of the year

ChainCatcher News, Joseph Wang, who previously served as a trader in the New York Federal Reserve's Open Market Operations department and is now active on YouTube under the name The Fed Guy, believes that after three years of balance sheet reduction, the Federal Reserve is highly likely to restart balance sheet expansion before the end of the year.

He does not agree with some investors' views—that the Fed is doing this to prevent a collapse in risk asset prices, to keep Treasury yields low, or even to avoid a liquidity crisis. He believes that if the Fed does not inject more liquidity into the system by purchasing securities, it will lose control over short-term interest rates; in other words, it will no longer be able to set monetary policy.

In Joseph Wang's view, strong demand for repos and the continuously expanding TGA account will force the Fed to expand its balance sheet by $30 billion to $50 billion each year.