Transparency has different definitions to different people. This is what Jerome Powell said. At the end of each FOMC meeting, the Fed issues a written statement and the chairman holds a press conference. However, in the case of the December FOMC statement and the press conference, the definition of Fed's transparency does not seem very transparent. It is true that many components of monetary policy are being discussed. However, the fact that nothing has been said about the upcoming monetary policy changes leaves a lot of questions. There are also subtleties in the words used to describe forthcoming adjustments, such as reducing the asset balance sheet and beginning to normalize interest rates. The Fed's actions are data-driven, and as that data changes, so does the Fed's outlook. However, there was no mention in the statement or at the press conference of a withdrawal of assets accumulated on the balance sheet. The published minutes revealed a fuller picture, discussing the right time to start reducing the balance sheet. Before the recession, which was a direct result of the global pandemic, the Fed began an aggressive program of quantitative easing, buying $120 billion of US Treasuries and mortgage-backed securities every month. During a recent press conference, the chairman was asked about the gradual asset reduction process. He said that once the gradual reduction process is complete, the balance sheet will remain intact and provide the necessary liquidity to continue the economic recovery. However, a very different picture emerges from the published minutes, which explicitly stated the beginning of the reduction in total assets. The chart below, titled "Fed balance sheet by era," was created by Reuters News Service using data from the Fed.

It shows that from 2008 to 2009, the Fed's assets were just under $1 trillion. In order to stimulate the economy, Chairman Ben Bernanke, who was appointed in 2006, used an orthodox method of stimulating and reviving the economy called quantitative easing. From November 2008 through June 2010, the Fed created money by buying financial assets from banks and the government. The quantitative easing program was implemented in four stages: QE1 - QE4. By 2014, the Federal Reserve had accumulated just under $4 trillion in assets. QE4 was the beginning of quantitative tightening, which was aimed at reducing the trillions of dollars held by the Fed. However, the tightening process was accompanied by problems and ended in 2019. The Fed eventually reduced their balance sheet to $3.7 trillion from $4.5 trillion. At that point, the Fed chairman believed that further cuts would create economic problems, so the asset reduction process was over. In mid-2019, the new Federal Reserve Chairman began aggressive use of quantitative easing, increasing the Federal Reserve's balance sheet to its current size of about $8.6 trillion from $3.7 trillion. The latest minutes showed that for the first time the Federal Reserve has publicly acknowledged that a timetable will be created to begin reducing assets. Judging by the history, the Fed's asset reduction has internal constraints and is a complex process that should be completed without negatively impacting the economic recovery. It was this additional component that caught market participants off guard, leading to a large drop in US stocks and gold. While Friday's jobs report could have a dramatic impact on various assets, it is this month that market participants will demand more clarity and transparency about the Federal Reserve's intentions to reduce their huge asset balance sheet.