U.S. Money Supply Hits Record High, Raising Concerns for Markets
The U.S. money supply, measured by M2, has surged to an unprecedented $22.2 trillion. This metric, encompassing cash, bank deposits, and certain certificates of deposit, serves as a critical indicator for economists tracking economic growth, inflation, and market trends.
Historically, money supply growth aligns with economic expansion. However, short-term fluctuations often reflect Federal Reserve policy shifts. The recent decline in M2 from early 2022 to late 2023 coincided with the Fed's aggressive rate hikes aimed at curbing post-pandemic inflation.
Monetary tightening typically reduces liquidity as the Fed sells government securities, draining cash from the system. This contractionary phase often precedes market turbulence as reduced lending and spending slow economic activity.
