FED, a hidden rate cut?
1) Money supply at an all-time high: an apparent paradox given that the Fed is no longer lowering interest rates
The M2 money supply in the United States has just reached a new all-time high, even though the Federal Reserve has not lowered its key interest rate since December 2024. This may come as a surprise: how is such an influx of liquidity possible without explicit action by the Fed on rates? However, this phenomenon is providing strong support for risky assets, starting with the S&P 500 index, which has rebounded sharply since April. For the record, M2 includes immediately available liquidity in the economy: currency in circulation, demand deposits, time deposits, money market funds, and highly liquid assets. It is therefore a key indicator of the spending and investment capacity of economic agents.
This rebound in money supply comes against a backdrop of macroeconomic resilience in the United States: commercial bank lending is picking up again, the labor market remains strong, and wages continue to rise. At the same time, the long-term upward trend in US stock markets remains intact. All these factors are fueling endogenous monetary expansion, regardless of immediate monetary policy decisions on interest rates. This strong return of liquidity is in turn fueling the markets, creating a self-reinforcing loop between rising asset prices, economic confidence, and credit injection.
The chart below shows the overlap between US M2 money supply and the S&P 500 futures trend.
2) Implicit monetary easing: has the Fed already pivoted without saying so?
The main explanation for this monetary expansion lies in an implicit pivot by the Fed, not through the Fed Funds rate, but via two less visible but equally powerful channels: the RRP (Reverse Repo Facility) and QT (Quantitative Tightening).
On the one hand, use of the RRP program has been in free fall for several months. This tool allows money market funds to place their excess short-term liquidity with the Fed. When the RRP declines, it means that this liquidity returns to the financial system to be reinvested elsewhere (Treasury bills, money markets, risky assets). This simple shift in cash constitutes an implicit easing of monetary conditions, lowering real short-term rates and increasing the availability of capital.
On the other hand, the Fed has significantly slowed its quantitative tightening program. In May 2025, it lowered its monthly cap on Treasury reductions to just $5 billion (down from $25 billion previously). This amounts to slowing the contraction of its balance sheet, thereby removing less structural liquidity from the economy. The result: the two levers, less sterilization via the RRP and less contraction via QT, combine to form de facto monetary easing, without any official change in the key interest rate.
3) So what are the consequences for the S&P 500 index?
In this context, the rebound in the S&P 500 can be explained not only by the current phase of trade diplomacy but also by hidden monetary easing. From a technical analysis perspective, the S&P 500 futures contract remains in a medium-term uptrend as long as the major support level of 5700/5800 points is maintained.
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