United States: money creation at its highest since World War II

Chart of the week

Money growth has risen sharply due to the Federal Reserve’s response to the Covid-19 crisis and the fact that economic agents have increased their cash deposit levels to safeguard liquidity or reduce spending.

In the last twelve months, money supply has grown at its highest rate since World War II. M2¹ grew 16% YoY, 9% over the last two months only. This pace is likely to remain high in the coming months.

Our analysis

What impact will such massive money creation have on the economy and on inflation, in particular? Although the last few years have shown that the relationship between money supply and inflation is not straightforward, the current acceleration is unprecedented.

This rapid increase is currently cushioning a severe deflationary shock and the money velocity has fallen sharply, in line with activity levels. The question will really arise when business levels recover, with the stance adopted by the Federal Reserve also key. Against this backdrop, it is too early to hazard an answer, but the next few years will provide an opportunity to revisit some of classic economics questions.


¹ M2 corresponds to M1 (coins and banknotes in circulation and overnight deposits) + passbook deposits and short-term loans.


See also :

China’s awakening


The opinion expressed above is dated  24 April 2020, and liable to change.


This document is not pre-contractual or contractual in nature. It is provided for information purposes. The analyses and descriptions contained in this document shall not be interpreted as being advice or recommendations on the part of Lazard Frères Gestion SAS. This document does not constitute an offer or invitation to purchase or sell, nor an encouragement to invest. This document is the intellectual property of Lazard Frères Gestion SAS. LAZARD FRERES GESTION – a simplified joint stock company with share capital of €14,487,500 – Paris Trade and Companies Registry No. 352 213 599. 25, RUE DE COURCELLES – 75008 PARIS, FRANCE