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Economic Red Alert: Money-Markets Swell as Fed’s Emergency Measures Hang by a Thread


As money-market funds climb to a staggering $6 trillion once again, concerns deepen about the underlying stability of our financial systems. This week, assets in these supposedly safe havens have swelled by $31.1 billion, driven by investors flocking to the security of government and prime funds amid ongoing economic uncertainty. Despite the Federal Reserve’s efforts to wind down its expansive bank bailout facility—which still holds a concerning $113 billion—the persistent reliance on such measures signals potential vulnerabilities within our banking sector. This trend, juxtaposed with the Fed’s contracting balance sheet and the volatile equity market, paints a troubling picture of our economic landscape, suggesting that deeper issues lurk beneath the surface.

Money market funds saw inflows for the third straight week (up $31.1BN) pushing the total assets to $6.03TN – the highest level in a month…

Source: Bloomberg


In a breakdown for the week to May 8, government funds – which invest primarily in securities such as Treasury bills, repurchase agreements and agency debt – saw assets rise to $4.88 trillion, a $20 billion increase. 

Prime funds, which tend to invest in higher-risk assets such as commercial paper, saw assets rise to $1.03 trillion, an $8.6 billion increase.

Both Retail and Institutional funds saw inflows (+7.8BN and +23.3BN respectively)…

Source: Bloomberg

Amid all the chatter about tapering QT, The Fed balance sheet continued to contract (though only $9.1BN)…

Source: Bloomberg

Additionally, The Fed’s (now expired) bank bailout scheme continues to decline (as the 12-month term loans run off), dropping by a sizable $11.5BN last week – erasing all the arb-driven usage. However, the facility still has a whopping $112.8BN left outstanding filling holes in bank balance sheets somewhere…

Source: Bloomberg

Finally, bank reserves at The Fed continues to contract, while US equity market cap remains dramatically decoupled…

Source: Bloomberg

Which makes us wonder, is Powell’s acquiescence to a bigger, sooner ‘QT taper’ (in the face of not-under-control inflation) to soften the blow when this crocodile mouth snaps shut.

This article originally appeared on Zero Hedge

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