United States: Money Supply Growth Still Very Strong

Chart of the week

The Federal Reserve is winding down its securities purchases as its balance sheet approaches $9 trillion, more than doubling in two years. Beyond the central bank’s actions, the money supply continues to grow at a very quick pace.

M2 growth is up 13% year-on-year, below the highs reached in 2020, but close to the highs reached in the 1970s.

OUR ANALYSIS

M2 measures the stock of the readily available money supply. Specifically, it includes currency, the most liquid asset, as well as small-denomination time deposits and money market fund shares.

Between February 2020 and December 2021, the latest period for which there is data, it increased from USD 15.5 trillion to USD 21.6 trillion. For comparison, this is equivalent to the increase over the previous eight years. The origin of this significant increase can be explained in particular by the very large financial support measures that have been deployed in the recent period, but also by the noteworthy increase in economic activity, as current GDP grew by 10% between Q4 2019 and Q4 2021. This very abundant liquidity is an important support factor for activity, but also for inflation over the coming quarters.

See also: https://latribune.lazardfreresgestion.fr/en/january-2022-double-punishment-for-fixed-income-markets/

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The opinion expressed above is dated February 18, 2022 and is subject to change.

*Sources : Bloomberg and calculation from Lazard Frères Gestion

As of : End of December

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