Draining the money pool – guess the ‘excess’.
But more pressing for many in financial markets are the Fed signals that it’s already time to siphon off some of the money it flooded into the banking system via emergency bond buying – money aimed at keeping the wider economy afloat during the shocking Covid-19 pandemic lockdowns.Surprising many investors, the Fed discussion on shrinking its bloated $8.
It wasn’t clear where Bostic plucked the $1.5 trillion figure from, but it’s roughly equivalent to what the Fed has been forced to drain from the money markets every day in recent weeks via overnight “reverse repo” operations.On Wednesday, Cleveland Fed chief Loretta Mester – a voting member of the Fed’s policymaking Open Market Committee this year – chimed with Bostic and told the Wall Street Journal she felt the balance sheet should be cut as fast as possible without disrupting markets.
Fanning that out to its measure of net global bond supply versus demand – it now sees that position deteriorating by some $1.3 trillion this year relative to 2021. And based on historical correlations, JPMorgan reckons that should typically see yields on global bond aggregate indices rise by an additional 35 basis points.
Will this have burnt off estimates of “excess”? Looking at global proxies for “excess” measuring world money growth against nominal GDP or the ratio of cash held as a share of household equity and bond holdings, JPMorgan reckons the excess is already gone.INTERVIEW | J.P. Morgan will open a new world for STANLIB. But will they outshine their peers?
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