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OxEcon See Slowdown in Global Liquidity as No Cause For Alarm

MACRO ANALYSIS
  • Oxford Economics write that the pinch in monetary aggregates (despite none of the big four central banks formally tapering QE programmes) is largely due to slacker private sector credit growth, with notably US metrics showing private sector credit actually shrinking.
  • Nonetheless, OxEcon write that it's so far been an orderly - and necessary - process to return the functioning of the global monetary system to normal.
  • They conclude that even if the Fed's large reverse-repo operations might on the surface look disorderly, they take it more as a sign that things are returning to normal, even with the occasional bump on the road. This pandemic-driven crisis has been peculiar in many aspects – from record high savings in a time of recession, to overheating real-estate markets and booming stock exchanges accompanied by record-low bond yields.
  • But OxEcon believe the current developments are more signs that markets are on the path to a return to pre-pandemic conditions, where slower credit and an occasional burst of sterilization are needed as liquidity gradually slows back to levels in line with economic activity.
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