Has the great migration of excess reserves out of the Federal Reserve and into the economy finally begun? It could be. Total reserves fell dramatically from $2.53 trillion to $2.28 in the last two weeks. I don’t know where they went or how the Fed sucked them out of the system. It must have something to do with the rise in interest rates but I’m not sure what.

The weekly money supply total is steady from two weeks ago, so the missing reserves so far don’t seem to be showing up in the money supply. However, the H3 release, which shows total reserves, measures until January 6 and the H6 release only through December 28. So it could be that when the H6 catches up, we will see the ripples of that $250 billion drop in total reserves starting to show up in the money supply.

The 1-week average should be carefully monitored over the next 2 weeks especially, to see if it moves up as total reserves move down. If it does, we are in for a monetary flood. If it doesn’t, then the Fed has figured out a way to drain excess reserves without affecting the money supply. If that’s true, the Fed must be selling assets in return for cash that it is retiring.

Any Fed experts out there who have a clue as to what is going on here?