We can see this by looking at the velocity of spending of the M2 money stock. Well, it didn't all go into real spending. The question becomes, where did all this money go? The M2 money stock was at $15,458.7 billion in February 2019 and grew to $21, 490.0 billion in December 2021. Here is what the M2 money stock has done over the same period of time. financial system.Īnd, this liquidity serves as the base for the money stock. The Monetary Base, the foundation of the economy's money stock, has grown since just before the appearance of the Covid-19 pandemic, from $3.454.5 billion to $6, 413.1 billion at its peak in December 2021.Īs can be seen, the Monetary Base has fallen modestly since then to around $5,600.0 billion as the Fed has reduced the size of its securities portfolio, but it is still more than 1.6 times its size in December 2021. So, I took a look back at the monetary aggregates, and here is what I found. Over the past several years, I have stayed away from what is called "the monetary aggregates." It seems that these data have fallen out of sight and are seldom referred to when discussing what the Federal Reserve is doing. The Fed has put so much money into the banking system, a concern can be raised about whether or not the proposed reduction in the Fed's securities portfolio is sufficient to really "tighten up" the banking system and the financial markets.
For a couple of months now, I have raised the question of whether or not the Fed is really doing enough in its effort to tighten. The Fed is "tightening." Investors do not seem fully concerned with what the Fed is doing.
It looks like we will get another 75 basis point increase in the effective Federal Funds rate early in November at the next meeting of the Federal Open Market Committee. This is happening with the Federal Reserve sticking to its quantitative tightening policy.Īnd, the Fed is very intent on keeping to its original path of monthly reductions in its securities portfolio and continued increases in its policy rate of interest. And, so on.īut, the Dow is up almost 1,000 points in two days? Large banks are showing that the consumer has not totally left the market. Well, earnings are coming in better than expected. And, the NASDAQ rose 355 points.Īfter such a winning day, the DJIA was up by 426 at 2:00 pm on Tuesday the S&P was up 54, and the NASDAQ was up 144.Īnalysts are having a hard time explaining such an exuberant stock market. The S&P 500 Stock Index was up 94 points. Yesterday, the Dow Jones Industrial Average was up 545 points.
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