Welcome to the Dividend Cafe weekly market commentary focused on dividends in your portfolio and dividends in your understanding of economic life.

Welcome to Dividend Cafe. This is Thursday. Brian Sightel is with you from our West Palm Beach, Florida office here in a bright sunny day, and I'm recording this

just a few minutes before the close here as I head to the airport to get to the California

office for next week. But I wanted to get this out your way. It was somewhat of a directionless day

in markets. It was a really pretty benign day overall. The S&P was about flat. Nasdaq was also

about flat, as was the Dow, slightly negative on the Dow, maybe 50 points or so. Interest rates on

the day went up here, a few basis points. We closed at 411 on the 10 year. That's up about

four basis points. So what's going on? There's a lot of talk on AI and how that will continue to unfold,

but most of the talk is related to Fed policy. It's related to the balance sheet that they're

managing and the size of it, quantitative tightening, and it's related to the next Fed chair,

which is likely to be announced at some point. Remember, that new Fed chair won't take office until May of next year, but it's likely announcement of who that will be would come sometime before that. A lot of talk has been between whether it will be Kevin Hassett. That's the most likely frontrunner at this point, and we'll give you some more data as soon as we get it. But in the meantime, what I wanted to write about today was a little bit about the balance sheet. It hasn't gotten as much attention as I think it probably

should. We know that since June of 2022, the Fed hit a peak of about $9 trillion just under on their

balance sheet. And since then, they've been reducing it through a program called quantitative tightening, QT.

So as bonds have matured, they have not reinvested those proceeds, but let them run off.

And they've even go so far as to reduce the balance sheet originally.

And have just been letting that runoff take place here over the last couple of years.

And what has happened is they've gotten it from $9 trillion down to $6. half. And actually, they've done that in the light of taking interest rates up 500 basis points as well. And the economy has performed just fine the entire time for the most part. There's been a couple bumps in the road. But it's actually been pretty astonishing in how really a soft landing was achieved this time around. Now, I don't want to get ahead of myself, so I suppose I could knock on my desk here.

It'll be interesting that the timing of Powell handing over the reins to the next Fed chair

may just come at a time when you're starting to see overnight repo markets stress a little bit with liquidity.

And so what that means is you've got corporate tax payments and Treasury settlements happening at the same time.

This pulls cash from the market.

And historically, the Fed steps in once you get below about 10% of GDP roughly.

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