Federal Reserve's Actions Convert Bank Deposit Outflow of $37BN into Inflow of $126BN

Money Market Funds Experience Growth

Last week, money market funds saw an increase in assets by $23.6BN. This has pushed the total funds under management back above the $6 Trillion mark, although it is still not at its peak due to some tax-related withdrawals that remain lost.

Inflows Observed in Both Retail and Institutional Funds

Both retail and institutional funds experienced inflows last week, adding to the overall growth of the funds.

Fed's Balance Sheet Dips

Amid discussions of tapering, the Fed's balance sheet experienced a significant decrease of $40BN last week, bringing it to its lowest point since January 2021. The QT continues at around $35BN.

Bank Bailout Fund Decreases

The Fed's now-expired Bank Bailout fund (BTFP) saw a slight decrease of $1.375BN. This brings it closer to erasing the surge in demand for the facility driven by arbitrage, but still leaves a substantial $12BN filling holes in bank balance sheets.

Bank Deposits Rise Significantly

Last week, following almost unprecedented outflows, total bank deposits (seasonally-adjusted) rose by a substantial $129BN to $17.58TN. This marked the largest increase in deposits since March 2021.

Federal Reserve's 'Science' Alters Bank Deposit Figures

However, according to the Federal Reserve's 'science', on a non-seasonally-adjusted basis, total bank deposits actually fell by $24BN.

Domestic Deposits Show Similar Pattern

Excluding foreign deposits, the situation was just as absurd. Seasonally-adjusted domestic deposits increased by $126BN (Large banks +$111BN - biggest since April 2020, Small banks +$15BN), while non-seasonally-adjusted domestic deposits decreased by $36.7BN (Large banks -$7.2BN, Small banks -$29.5BN).

Loan Volumes Increase for Third Consecutive Week

For the third week in a row, total loan volumes increased (by $5.8BN) with large bank volumes increasing by $4.2BN and small bank volumes increasing by $1.6BN.

Bank Reserves at The Fed Continue to Contract

Bank reserves at The Fed continue to contract, while the US equity market cap remains dramatically decoupled.

Powell's Response to Inflation

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?

Final Thoughts

It's clear that the Federal Reserve's actions have had a significant impact on bank deposit figures, turning a substantial outflow into an inflow. However, the methods used to achieve this, and the long-term implications, are less clear. What are your thoughts on this matter? Do you think the Federal Reserve's actions are justified, or do they raise more questions than they answer? Share this article with your friends and let us know your thoughts. Don't forget to sign up for the Daily Briefing, every day at 6pm.