On Thursday, JPMorgan reported that the United States' liquidity, or money supply, has begun to mildly contract in the current quarter.
This follows a period of expansion where the money supply increased by $1.3 trillion from the end of April 2023 to the end of March 2024. The firm had previously indicated in its publication that the US liquidity backdrop would become less supportive starting from the second quarter of 2024.
The assessment of the US money supply for the second quarter has been complicated by the April tax date, as tax collections typically lead to a decrease in bank deposits and Money Market Funds (MMFs).
However, with the Treasury General Account (TGA) balance returning to pre-tax date levels by the end of April, JPMorgan suggests that tax-date related distortions to the money supply should now be largely resolved.
By the end of April, the US money supply, as proxied by the sum of commercial bank deposits and the assets under management (AUM) of MMFs, showed a contraction of approximately $200 billion since the end of March 2024. This contraction aligns with JPMorgan's expectations of a mildly negative trajectory for the remainder of the year.
The recent contraction represents a significant shift from the previous 11 months, during which the US money supply expanded largely due to liquidity injections from a $1.8 trillion reduction in the Federal Reserve's reverse repo facility.
JPMorgan's analysis identifies three phases in the trajectory of US liquidity: a mildly contracting phase from the beginning of 2022 to April 2023, a rapid expansion from the end of April 2023 to the end of March 2024, and a return to a mildly contracting phase from the current quarter onward.
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