After the enormous stimulus made by the American government and the FED to support the economy during this period of COVID-19 pandemic, we observe a drop in the level of FED intervention in the money market.

The average Federal Reserve Balance sheet has gone negative this week at -0.21% on a monthly percentage change.

The effective fed funds rate has moved a little bit upward from 0.05% in May to 0.08% in June on a monthly average.

We also have noticed a slight decrease in pace of money printing – M2 money supply.

u.s M2 Money Supply

Those three main monetary policy actions taken this week are signaling that the FED is no more easing financial and monetary conditions like before and it looks now less Dovish.

From our point of view we read those actions taken by the Fed as in response the retracement made by major leading indicators such as IMS PMIs, Building Permits, and UMCSI…

Major leading indicators are signaling an April bottoming, followed by a little recovery in May and June.

The recovery in major soft data indicates a transition from the extreme deflation, which needs a dovish Central bank, to less deflationary.

The question here is whether those simultaneous actions taken by the Fed, are to be persistent for a much longer period, or just for a purpose of technical adjustments.    

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  1. like the info

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