RRP Near Zero: The Liquidity Squeeze Behind July's Fed

The Fed is reading two data streams that no longer agree, and the September FOMC decision will hinge on which one wins. July headline CPI rose 3.30% year over year and core PCE is running 3.29%, both a hair below the top end of recent prints, while July payrolls fell 23,000, the first outright monthly decline this cycle. That combination looks like it clears the path for a September cut. It does not. The more consequential number in this week's data is not in the inflation report at all. It is in the plumbing: overnight reverse repo balances have drained to $0.45 billion, M2 is growing at 5.53% year over year against nominal GDP growth of roughly 4 to 5%, and the Fed's ample-reserves buffer…