re: “the economy seems to be re-accelerating:”
Retail MMMFs are nonbanks. Mises has it right:
“The definition of M2 includes money market securities, mutual funds, and other time deposits. However, an investment in a mutual fund is in fact an investment in various money market instruments. The quantity of money is not altered as a result of this investment; the ownership of money has only changed temporarily. Hence, including mutual funds as part of M2 results in the double counting of money.”
see: “Correlations and the Definition of the Money Supply”
October 19, 2023
https://www.misesfans.org/2023/10/correlations-and-definition-of-money.html
The FED’s technical staff doesn’t know a debit from a credit. Just like MSB deposits were misclassified (included in the tabulations of the money stock), from 1913 to 1980, MMMFs deposits should not be classified in M2.
See: TOWARD A MORE MEANINGFUL STATISTICAL CONCEPT OF THE MONEY SUPPLY
Leland J. Pritchard
First published: March 1954
So, O/N RRPs are misrepresented. Thus, the conventional wisdom is wrong:
“O/N RRPs do not affect the size of the money stock, but they do affect its composition1. When counterparties lend cash to the Fed, they reduce the amount of reserve balances on the liability side of the Fed’s balance sheet and increase the amount of reverse repo obligations1. This means that there is less money available for lending in the private market, which can put upward pressure on interest rates”
According to the Federal Reserve Bank of Chicago’s “Modern Money Mechanics”:
“If the buyer of a reverse repo or a security sold by the Fed is a nonbank (which 90% of RRPs are), and pays for the purchase using its bank account, the money supply is directly affected”.
Both money and reserves are increased. The FED has been supplying liquidity to the markets.