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Fed Balance Sheet Hits $8 Trillion for the First Time, US Inflation Sees Biggest Surge in 13 Years

The balance sheet of the Federal Reserve has topped $8 trillion for the first time, according to the weekly data published by the US central bank on its holdings.

At $8 trillion, the Fed’s assets have about doubled since it started large-scale purchases in March 2020 to combat the effect of the coronavirus pandemic.

The report also showed that the central bank had sold about $160 million of its corporate debt holding this week, ever since it announced on Monday that it would unwind its $14 billion corporate credit portfolio.

As a first step towards this, the Fed began selling its stakes in 16 bond exchange-traded funds (ETF). But the sale of holdings is not expected to have any serious effects on the market. S&P 500 actually rose to an all-time high of 4,249.74 on Thursday.

However, in the cryptocurrency market, Bitcoin price is currently above $37,000, Ether around $2,450, and the total crypto market cap at about $1.6 trillion, still down more than 35% to 45% from their ATHs recently.

It's a NEW WORLD RECORD!! ????????????

The US Federal Reserve balance sheet has now reached an all time high of $8 trillion. #LongBitcoinShorttheBankers pic.twitter.com/NxqdT7QPGs

— Mati Greenspan (tweets ≠ financial advice) (@MatiGreenspan) June 10, 2021

Investors also shrugged off a key inflation report that showed a bigger-than-expected increase in price pressures.

Consumer prices for May increased at their fastest pace since the summer of 2008 when the reading rose 5.4%, said the Labor Department. The consumer price index, which represents a basket including food, groceries, energy, and prices across a spectrum of goods, surged 5% from a year ago.

Prices for used cars and trucks soaring 7.3% from the previous month was particularly responsible for the rise in the overall Index. The indexes for furniture, apparel, and airline fares also rose sharply in May.

Investors have been worried that spiking inflation would spark a move higher in interest rates and cause the Fed to tighten its monetary policies.

#Inflation is rising but the bond market seems to ignore the data.

For now it is still possible to blame the base effect for inflation.

But the further we are moving away from March the less likely it is to be just transitory… pic.twitter.com/Mob3sCGDAf

— ecoinometrics (@ecoinometrics) June 10, 2021

“This CPI isn’t likely to change the narrative dramatically, and there are still indications that inflation momentum is set to abate in the coming months,” Adam Crisafulli, founder of Vital Knowledge, said in a note.

The core-price index (CPI), which excludes food and energy, jumped 3.8% in May from the year before — the largest increase since June 1992.

A separate report released showed that jobless claims for the week ended June 5 came in at 376,000, slightly higher than the estimated 370k but still marking the lowest of the pandemic era.

European Central Bank President Christine Lagarde also mentioned that inflation is likely to pick up as the economy gets back on track. And although they have revised their forecast upward, inflation is still expected under 2%; thus, they are not considering reducing the copious amounts of stimulus they are currently providing.

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