Net outflows from US money market funds, and usage of Fed rescue tools surges again
In the beginning of the new year, the assets of the US money market funds experienced a net outflow of $5.961 trillion. The Federal Reserve's balance sheet continued to shrink, while bank reserves rebounded, consistent with the increase in US stock market value. Last week, the usage of the Federal Reserve's bank rescue tools surged to a record high of $162 billion. The Bank Term Funding Program (BTFP) may end the bank rescue plan in March.
Investors reallocated their investment portfolios at the beginning of the new year, resulting in the first weekly net outflow of assets from US money market funds in a month. Total assets decreased by $14.1 billion from the previous week's $5.975 trillion to $5.961 trillion. The Federal Reserve's balance sheet shrank by $13 billion last week, reaching a new cyclical low of $7.674 trillion (the lowest level since March 2021). Thanks to the continued reduction of reverse repurchase agreements, bank reserves continued to rebound strongly in the context of balance sheet contraction, aligning with the increase in US stock market capitalization. In addition, the usage of the Federal Reserve's Bank Term Funding Program (BTFP) surged by $14.3 billion last week, reaching a historical high of $162 billion, the largest weekly increase since the SVB crisis. Since its inception, the BTFP has increased by over $47 billion. The possibility of the Federal Reserve ending the Bank Term Funding Program (BTFP) in March is becoming increasingly likely. US regulatory agencies plan to require banks to make greater use of the discount window.