Economics: We need to talk about money

Monetary trends have been very weak

The monetary data have been exceptionally weak in the developed economies recently. US bank deposits are falling at their fastest rate on record, and possibly for the first time since WWII. Recent bank failures were potentially symptomatic of these pressures.

This weakness looks likely to persist

This weakness reflects three broad trends, each of which looks likely to persist. First, central banks are running down their bond holdings. Second, credit growth is slowing. And third, higher interest rates are drawing deposits into less liquid accounts.

Policy rates are getting closer to their peak

With central banks backstopping liquidity, these pressures seem likely to manifest as weaker profitability. Deposit and lending rates should continue to move higher. This leaves us more confident that central banks are approaching the peak of the rate cycle.