JPMorgan strategist Nikolaos Panigirtzoglou has discussed recent changes in the U.S. M2 money supply, noting a temporary rebound following a decline in April. He expects U.S. liquidity to contract again, similar to 2022, influenced by the Fed’s ongoing quantitative tightening (QT) and slower bank loan growth.
JPMorgan Strategist Predicts US Liquidity to Contract as Temporary Boosts Fade
This article was published more than a year ago. Some information may no longer be current.
WRITTEN BY
SHARE
JPMorgan Strategist Foresees U.S. Liquidity Contraction Ahead
Nikolaos Panigirtzoglou, a cross-asset market strategist at JPMorgan, shared his analysis last week of the recent fluctuations in U.S. liquidity or M2 money supply, which includes U.S. bank deposits and money market funds.
“After contracting in April, U.S. liquidity or M2 money supply, i.e. the sum of the stock of US bank deposits and Money Market Funds (MMFs), rebounded in recent months,” he began, adding:
While this rebound challenges our forecast for a mildly contracting trend until at least year-end, we believe that our forecast is still reasonable and that the recent rebound in U.S. liquidity is likely to prove temporary.
“In our mind, there have been two temporary boosts to U.S. liquidity recently,” he added. These temporary boosts were attributed to a reduction in the U.S. Treasury General Account to below $850 billion and a drop in the Federal Reserve’s reverse repo facility to under $300 billion, he described.
Panigirtzoglou suggested that these factors are likely behind us now, paving the way for a different liquidity environment, stating:
With these two temporary boosts likely behind us, the Fed’s ongoing QT and a milder expansion of U.S. bank loans should all combine to create a contracting trajectory for U.S. liquidity or money supply, similar to the liquidity backdrop of 2022.
He noted that this expected contraction represents a major change from the growth seen between April 2023 and March 2024, when the money supply increased by $1.3 trillion, primarily due to a $1.8 trillion decrease in the Fed’s reverse repo facility. With these temporary factors fading, Panigirtzoglou expects a shift back to more restrictive financial conditions.
What do you think about JPMorgan strategist Nikolaos Panigirtzoglou’s analysis of U.S. liquidity trends and the potential for a contraction in money supply? Let us know in the comments section below.
