U.S. M2 expanded 5.66% YoY to $23.34T while CPI remains 3.35% YoY; tighter risk-free rates are widening credit spreads and creating macro fragility heading into FOMC minutes.
Macro & Markets ·
U.S. money supply expanded to $23.34 trillion in August, growing 5.66% year-over-year, while consumer price inflation held at 3.35% annually—indicating liquidity growth outpacing price gains. Over the past week, rising risk-free rates have begun to spill outward into credit markets, widening high-yield spreads and exposing structural fiscal fragility, particularly within the Eurozone where the French-German bond spread widened to approximately 150 basis points. The broad trade-weighted dollar stood at 120.33 on 25 September, up 0.68% over the week.
Stock markets found temporary support from softer-than-expected labor data and cooling inflation expectations, propelling the tech-heavy index to record levels. However, this resilience masks an underlying divergence: while equities rallied on recession hopes, credit conditions tightened as investors repriced sovereign risk. The protective effect of cheap global liquidity has receded, leaving structural fiscal imbalances exposed to market discipline—a dynamic analysts warn is the week's central vulnerability rather than evidence of macro stabilization.
Coming days bring the Federal Reserve's policy minutes and data on services activity, trade, jobless claims, and sentiment. Markets have sharply repriced the October rate hike probability downward, but the core issue remains: structurally elevated government and corporate bond supply competing against thinner long-term demand, with stress migrating beyond sovereign curves into corporate and rate-sensitive credits.