Investing.com -- JPMorgan forecasts U.S. liquidity to expand by $1.6 trillion in 2025, surpassing the pace recorded last year.
In a new report, the bank said its proxy for the U.S. money supply, which aggregates U.S. commercial bank deposits and the assets under management (AUM) of U.S. money market funds, increased by $1.2 trillion in 2024, following a $1 trillion rise from May 2023 to the end of 2023.
This resulted in a cumulative $2.2 trillion increase in U.S. money supply, representing a 9.6% growth during that period.
“We further argued, that this strong, faster than nominal GDP, U.S. money creation of the previous year and a half had likely reverberated into financial assets and has likely been a significant factor in propagating U.S. equities during 2023 and 2024,” strategists led by Nikolaos Panigirtzoglou noted.
Year-to-date through March 12, 2025, the U.S. money supply has already risen by $320 billion in just 10 weeks, implying an annualized pace of $1.6 trillion for the full year.
The surge comes after the Federal Reserve surprised markets by announcing a slowdown in its quantitative tightening (QT) earlier than expected. Moreover, signs of accelerating U.S. bank lending from last year’s pace have supported this strong momentum.
JPMorgan projects a 6.4% expansion in U.S. liquidity for 2025, significantly above its nominal GDP projection of 3.5%.
“With the Fed surprising positively in its last meeting by announcing a slowing of its QT earlier than expected and with signs of U.S. bank lending accelerating from last year’s pace, this is supportive of the strong YTD pace in U.S. money creation continuing for the remainder of the year,” strategists said.
The expected liquidity boost is likely to support U.S. financial assets, particularly equities, even as cash allocations by non-bank investors remain low.
JPMorgan warns, however, that low cash allocations could create a vulnerability if a significant negative shock prompts investors to rebuild their cash buffers, similar to what occurred in March 2020 during the pandemic and in 2022 during the Ukraine war and the global inflation shock.