The monetary aggregates are alternative measures of the money supply by degree of liquidity. Changes in the monetary aggregates indicate the thrust of monetary policy as well as the outlook for economic activity and inflationary pressures.
In recent years, the various money supply measures have not mattered to most investors - though that has changed somewhat recently. The monetary aggregates (known individually as M1, M2, and M3) used to be all the rage when the Fed did not publicly announce it interest rate target because the data revealed the Fed's (tight or loose) hold on credit conditions in the economy. The Fed in the past issued target ranges for money supply growth at its first report to Congress each year. In the past, if actual growth moved outside those ranges it often was a prelude to an interest rate move from the Fed. Today, the Fed no longer sets money supply targets due to a variety of changes in the financial system and the way the Federal Reserve conducts monetary policy. Monetary policy is understood more clearly by the level of the federal funds rate.
But with the Fed cutting the fed funds rate to essentially zero in December 2008, markets began to look for other ways (other than rate changes) for viewing the progress and impact of quantitative easing - and tracking the money supply became one of numerous methods of seeing how the Fed's further injections of liquidity were filtering through the economy.
This indicator has had low importance during the Fed's publicly announced interest rate targeting period but has gained a little more stature during quantitative easing since the fed funds rate has been at essentially zero.
Markets focus on measures of money supply that are relatively liquid - M1 and M2. These are basically cash, checking deposits, and savings types of accounts. However, both measures are somewhat volatile on a weekly basis and monthly data give a better picture of how much liquidity the Fed has injected into financial markets has been converted into readily spendable forms.
Federal Reserve Board of Governors
Data are for week ending on Monday two calendar weeks prior to release (April 6, 2009 data released April 16, 2009).
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