Have Central Banks Tightened Too Quickly?

Have Central Banks Tightened Too Quickly?

 

Latest weekly balance sheet data from major Central Banks show aggregate liquidity growth hovering at a pandemic era-low of 7.2%. The G4 equivalent (ex. China) stands at 6.3%. At this time last year, liquidity was expanding at a 49% 3m ann. clip (G4, 54%), having peaked at 95% (G4, 110%) a month earlier. The main driver has been the US Fed, where liquidity is shrinking on a 3m annualised basis. The Fed downturn, dating from April, has been compounded by the ECB and Bank of England. The sharp slowdown in US Fed and ECB activity is all the more important because they have supplied 85% of World QE over the past three months. Yet, recent economic data point to slowing momentum: have Central Banks tightened prematurely?