Core Viewpoint - The cost of money is increasingly determined by the central bank's balance sheet rather than just interest rates, indicating a shift in market dynamics and investor sentiment [2][3][6] Group 1: Central Bank's Balance Sheet - As of August 2025, the Federal Reserve's balance sheet is approximately $6.6 trillion, representing about 22% of the nominal GDP of the United States [2] - The Federal Reserve's "deferred assets," or future losses, have reached $232 billion as of June 2025, indicating that it is currently in a position of paying interest rather than generating profits for the Treasury [2] Group 2: Implications for Investors - The pricing logic of Treasury yields is changing; the term premium is increasingly dependent on whether the Federal Reserve can reduce its balance sheet, leading to higher required compensation if balance sheet reduction is hindered [3][4] - The Federal Reserve's losses may not directly undermine the dollar's international status, but they could alter global investors' perceptions of the U.S. fiscal and monetary partnership, affecting the demand for U.S. Treasuries [4] - High interest expenses for the Federal Reserve imply greater pressure on government deficits, which could lead to increased tax expectations or higher Treasury supply, ultimately raising interest rates and impacting stock valuations [4][5] Group 3: Future Considerations - The demand for capital-intensive sectors like AI and energy transition will likely increase, putting more pressure on the Federal Reserve's balance sheet and making the cost of capital more pronounced [5][6] - Investors need to focus on the central bank's balance sheet rather than solely on interest rate projections, as the real cost of capital is influenced by the underlying financial dynamics [5][6]