US “money of zero maturity” – a money supply measure comprising currency and instant-access deposits – surged by 1.6% in the two weeks to 4 July, pushing three-month annualised growth up to 15.1%.
Within MZM, M1 – currency plus checkable deposits – rose by 3.0% over the fortnight and 21.7% annualised over the last three months.
A build-up of cash in instant-access accounts usually signals that consumers / firms are planning to boost spending or investment in markets, with bullish implications for the economy and asset prices. On this occasion, however, the rise may partly reflect increased risk aversion and liquidity preference induced by the political dead-lock over raising the debt ceiling.
Liquidity, nevertheless, should flow back into the economy and markets in the likely event of an agreement – even if only on a short-term fix.
