From my perspective, the main takeaway is that Fed liquidity has been locked into a “stair-stepping downwards” pattern since April 2024.
Starting from a new lower base at the beginning of every quarter.
The “stealth QE” that occurred during 2023 is now being wiped away.
From now on, Fed liquidity will likely continue to generally fall over time, reaching a new low every end-of-quarter, until at least one of the following things happens:
1⃣ The Fed stops Quantitative Tightening (ending downward pressure on liquidity)
2⃣ The Treasury General Account is meaningfully drained (liquidity injection, but only temporary)
3⃣ Another new “temporary” Fed liquidity facility is implemented (like the Bank Term Funding Program in March 2023)I think there is a good chance that no. 1 and/or no. 2 will happen in the first half of 2025.
Until then, the Fed will be putting more and more stress on funding markets, particularly at end-of-quarters – inching slowly closer to a level of “scarce” bank reserves and a potential 2019 Repo Crisis-style event.
More liquidity is always coming – eventually.
It’s just a question of how far the Fed is willing push things before giving up.
📉 Fed liquidity falls by $400bn as risk assets struggle – but what's next?
Net Federal Reserve Liquidity fell by $409bn between December 16 and December 31.
Seasonal end-of-year factors pushed it to the lowest level since December 2022.
A large part of the drop came on the… https://t.co/3k3LEWVLRP pic.twitter.com/yWOKGIWGgO
— Tomas (@TomasOnMarkets) January 2, 2025
FUN FACT 🚨: S&P 500 has now traded red for 5 straight days while remaining at least 5% above its 200D moving average. This exact situation occurred prior to the 1987 Black Monday Crash!
— Barchart (@Barchart) January 3, 2025
The most anticipated crash in history
— Barchart (@Barchart) January 3, 2025
"Speculative 'mega cap tech' call buying has decreased significantly: down 75% from peak."
– GS Garrett via @zerohedge pic.twitter.com/JopZnpt1x5
— Daily Chartbook (@dailychartbook) January 3, 2025
https://x.com/Mayhem4Markets/status/1875041406269772084
$spx vs. Fed reserve balances. Liquidity vanished last week. pic.twitter.com/T7TFRHreyD
— Michael J. Kramer (@MichaelMOTTCM) January 3, 2025
The Fed will end QT in March or April give or take a month.
Especially with RRP running dry.
Banking liquidity is getting too tight. pic.twitter.com/YfKjQK1wqy
— QE Infinity (@StealthQE4) January 3, 2025
This look like the biggest bear trap pic.twitter.com/rTBrItmfjr
— Rice cooker (@anytimeFXmetal) January 3, 2025
S&P 500 price-to-book ratio has now surpassed the peak of the Dot Com Bubble 🚨 Congrats everyone we did it 🫡🥳 pic.twitter.com/EcFsZxQg7o
— Barchart (@Barchart) January 3, 2025
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