Is This the End of Liquidity-Driven Bull Markets? w/ Michael Howell

Summary

Michael Howell argues global liquidity will rise in 2026 as QT ends and QE restarts, but it likely won't be enough to close the US bank reserve shortfall. He expects repo stress to persist and sees policymakers shifting from Fed QE to Treasury QE directed at the real economy, favoring Main Street over Wall Street. This policy may support the economy but not sustain a strong bull market, while lower rates could weaken the dollar and later stoke inflation risk.

• Michael Howell expects 2026 liquidity to increase but remain insufficient to meet bank reserve needs.
• US bank reserves are roughly $400B below the level he estimates banks want, keeping repo markets stressed.
• Policymakers appear reluctant to add large Fed liquidity, shifting toward Treasury QE and front-end bill funding.
• The policy mix favors Main Street over Wall Street and may not sustain a strong bull market.
• Howell is upbeat on the US economy due fiscal spending and AI capex, but sees inflation as the main risk.
• A dovish Fed chair and FOMC could push rates down quickly, pressuring the dollar.
• Inflation in H2 could force the Fed to rethink rapid rate cuts.