US Federal Reserve’s Assets Fall by $2.37 Trillion

 The U.S. Federal Reserve’s total assets have declined by $2.37 trillion since the fourth quarter of 2020, marking one of the steepest contractions in the central bank’s balance sheet in modern history.

The Fed’s assets, a key gauge of its market interventions, dropped to $6.60 trillion in the third quarter of 2025, the lowest level since April 2020, according to the latest Federal Reserve data. The balance sheet now represents 21.6% of U.S. nominal GDP, the smallest share since late 2020, signaling a steady unwinding of pandemic-era monetary stimulus.

The decline stems from the Fed’s ongoing policy of quantitative tightening, through which it steadily sells portions of its holdings in U.S. Treasury securities and mortgage-backed assets. The strategy aims to curb inflation and normalize liquidity after years of ultra-loose monetary policy.

Since its 2022 peak, the ratio of Fed assets to GDP has dropped 14 percentage points, the sharpest decline on record. The contraction underscores how the central bank is prioritizing balance-sheet discipline even as fiscal challenges and political pressures mount in Washington.

Among major central banks, the Federal Reserve now holds the lowest asset-to-GDP ratio, lagging behind the Bank of England (25%), the European Central Bank (40%), and the Bank of Japan, whose assets equal an extraordinary 110% of Japan’s GDP.

Analysts say the Fed’s shrinking balance sheet could have wide-ranging effects,  from tighter financial conditions to potential volatility in U.S. debt markets, as policymakers weigh the balance between stability and inflation control.