These charts demonstrate that the true catalyst for bank lending, economic growth, and broader money circulation is the initiation of a rate-cutting cycle. Typically, the sequence begins with a modest reduction in rates. Once economic activity stabilizes, the Federal Reserve reinforces this by expanding liquidity—lowering reserve requirements—and subsequently allowing rates to decline further. 

When overlaying the historical data, a clear pattern emerges: as inflation accelerates, the Fed responds by raising both reserves and interest rates. Conversely, when the economy requires stimulus, either reserves are reduced or interest rates are lowered, thereby releasing liquidity into the system. 

The current decrease of the Federal Reserve Balance Sheet points out that the clear understanding that the Federal Reserve is trying to reduce too much liquidity in the market. Lower rates with ample liquidity leads to high inflation. As a result, the decrease of the FED balance sheet shows the high probability of a much lower rate environment in the near future.