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Economy in Brief

U.S. Money Growth Perks Up With Inflation Worries
by Tom Moeller  December 13, 2010

Growth in the monetary aggregates has roughly doubled during the last several months versus growth earlier in the year.  The figures in the table below indicate that growth in the narrow aggregates has picked up the most as the cost of liquidity has fallen with interest rates near zero. Behind that 16.4% 3-mth. growth in M1 is 29.3% growth in demand deposits and 10.1% growth in currency. Fueling the broader M2 aggregate's 6.2% growth rate is 13.1% growth in savings deposits and MMDAs. Funds in other small time deposits and retail money funds have been falling.

The money aggregates, however, more reflect the demand for funds than the supply provided by the Federal Reserve. To gain perspective on supply is the monetary base, from the Fed, where growth has been negative for the last year. The Fed clearly is attempting to drain some of the liquidity provided following the stock market crash during 2008. The adjusted monetary base from the St. Louis Fed shows a similar pattern of reduced liquidity with negative growth all this year.

Of course, with the attempt to promote economic growth with money comes the potential for inflation. The credit market consistently worries about inflation as shown by a steeply sloped yield curve. The10-year Treasury note rate now hovers near 3%. Economists also are worried about inflation. Recently, expectations by the NABE for growth in the core CPI price index at year-end increased, though to a still-modest 1.5%. That is nearly double this cycle's low.

The figures used for this report can be found in Haver's WEEKLY and SURVEYS databases.

Federal Reserve Study Shows More Than Three-Quarters of Noncash Payments Are Now Electronic is available here.

U.S. Money Measures (%, AR) 3 Mth. 6 Mth. 12 Mth. 2009 2008 2007
M1 16.4 13.8 9.2 14.2 4.4 -0.2
M2 6.2 4.8 3.4 7.9 7.1 6.3
MZM 9.1 7.4 1.7 9.6 14.1 9.1
Monetary Base -0.4 -3.4 -4.1 80.9 19.4 2.1
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