U.S. July broad money growth continues at robust pace

The growth rate of U.S. bank loans rebounded to 7.7% y/y last month, from 7.6%. Experts argue that a near 8% annual growth rate is not good enough, because bank credit was expanding at an even faster pace in the years leading up to the financial crisis. 

However, bank loan growth is weaker now because the growth rate of residential mortgages is much lower. It is expected to be a bit higher. But the last thing the U.S. economy needs is a repeat of what happened in the run up to the crisis, when a big surge in mortgage credit fuelled a massive bubble in house prices.

In an economy where sustainable nominal GDP growth is probably close to 4.5% (2% inflation and 2.5% real GDP growth), 7.5% plus growth in bank credit is more than ample, says Capital Economics. 

The Fed has reduced the frequency of the testing of its term deposit facility and, except for a spike at the end of the second quarter, the use of its reverse repo facility appears to have waned in recent months. The Fed appears to be able to control the effective fed funds rate on most days, but it still can't prevent the periodic plunges to near-zero at the end of each month. 

"There is no reason to expect a slowdown in bank loan growth either. Demand for business loans should remain strong in the second half of this year.  The growth rate of credit card lending should continue to accelerate", states Capital Economics in a research note on Wednesday.