Core Viewpoint - The Federal Reserve's balance sheet has decreased significantly, indicating a potential shift in monetary policy as employment data shows weakness and inflation trends downward [2][7][8]. Group 1: Balance Sheet Overview - The total size of the Federal Reserve's balance sheet is $6.6408 trillion, down $17.35 billion from the previous week [2]. - The asset side includes $4.2045 trillion in Treasury securities and $2.1207 trillion in mortgage-backed securities (MBS) [2]. - The reserve balance reached $3.3304 trillion, showing an increase from the previous week [6]. Group 2: Liquidity Release - A total liquidity release of approximately $332.02 billion occurred this week, driven by a decrease in reverse repos and an increase in fiscal deposits [4][5]. Group 3: Employment Data and Economic Outlook - The U.S. added only 73,000 jobs in July, significantly below expectations, with the unemployment rate rising to 4.2% [7]. - Job data for the previous two months was revised downwards, indicating a weakening hiring momentum [7]. - Mary Daly, President of the San Francisco Fed, suggested that the Fed may need to consider rate cuts in the coming months due to the cooling job market [7][8]. Group 4: Inflation Trends - Excluding tariff impacts, inflation in the U.S. is showing a gradual decline, supported by economic slowdown and tightening monetary policy [8]. - The probability of the Fed maintaining interest rates in September is low at 6.4%, while the likelihood of a 25 basis point rate cut is high at 93.6% [8].

Core Viewpoint - Kevin Warsh, a potential candidate for the next Federal Reserve Chair, criticizes the Fed for attributing inflation concerns to external factors, suggesting this undermines its credibility [1] Group 1 - Warsh argues that the Fed's assertion that inflation is influenced by external price changes indicates an admission of damage to its own credibility [1] - He highlights that the Fed's large and continually expanding balance sheet may contradict its primary policy tool of setting short-term borrowing rates [1] - Warsh suggests that if the Fed can reduce its money printing, it would be possible to lower policy interest rates [1]