Federal Reserve Chair Jerome Powell, receiving an award from the National Association of Business Economics on Tuesday, gave a speech largely about something called the Fed’s balance sheet. Here’s how he set it up:

“A colleague recently compared this topic to a trip to the dentist, but that comparison may be unfair — to dentists.”

The Fed’s balance sheet is basically a big list of all the things the Fed owns and all the things it owes. Because when the Fed buys and sells things, that moves the economy.

“It’s important to back way up to 2008 when we were having the global financial crisis,” said Jill Cetina, a professor of finance at Texas A&M University.

The economy was in a world of hurt, so the Fed lowered short-term interest rates all the way to zero. And … nothing happened.

“We were still in the midst of a very significant financial crisis,” Cetina said.

So the Fed started buying stuff. Long-term Treasurys, mortgage-backed securities — trillions worth, by the end. That got the markets moving again, and it deeply affected them.

“When (the Fed) buys longer-term securities, that tends to drive up the price of those securities, drives down the yield of those securities,” said Don Kohn, a senior fellow at Brookings.

The Fed basically manhandled the market, and that lowered more interest rates in the economy. 

“That makes mortgages more affordable, buying cars on credit, business financing, capital spending, etc.,” Kohn said.

But since about 2022, the Fed has been, slowly, not doing this as much. It’s been letting Treasurys expire and not buying new ones. And you can see it in the balance sheet.

“Holdings have declines by about $2.2 trillion,” said Martin Tobias, a strategist at Morgan Stanley. 

The Fed does not want to manhandle markets anymore — doesn’t see the need. So it’s been slowly lightening its touch.