Friday, January 11, 2013

Monetary Base Ticks Slightly Higher

The monetary base ticked higher by a non-negligible amount for the first time since QE3 started last week.  The Fed has agreed to purchase more than $150B worth of securities since September but up until now the monetary base has remained relatively flat due to the time it takes for mortgage trades to clear and shifts in other balance sheet items which absorbed some of the growth.  

Interestingly the debt ceiling is a driver of this week's growth as one of the "cookie jars" that is keeping the government running is Treasury's deposit account at the Fed.  When Treasury draws this account down to fund itself the money it spends finds its way into the calculation of the base.

It seems like this should be a turning point for the base, but admittedly it's been difficult to predict the way that the dynamics have played off of each other to keep the Base flat.  Tune in next week for an update on whether paint has dried further.

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