As the Federal Reserve, the U.S. central bank, implemented aggressive monetary tightening policies in response to inflation for the first time in about 40 years, the U.S. money supply (based on M2) decreased for the first time in history last year.
According to Reuters on the 26th (local time), the amount of M2 currency compiled by the Fed last month was USD 21.2 trillion, down USD 147.4 billion from the previous month on a seasonally adjusted basis.
This is the fifth consecutive month of decline, and as a result, the annual M2 call volume fell for the first time last year since related records were compiled.
Last month, M2 money supply was close to USD 300 billion compared to the same month last year, and has decreased by more than USD 530 billion since March last year when the Fed began to raise its key interest rate.
M2 is a broad currency indicator and includes short-term financial product funds that can be cashed in immediately, such as money market funds (MMFs), in addition to cash, demand deposits, and occasional withdrawal deposits (M1).
Earlier, the Fed supplied huge liquidity to the market through the purchase of government bonds and mortgage securities (MBS) in the process of responding to the economic recession caused by the spread of COVID-19 in 2020.
In the process, the amount of M2 currency increased by USD 6.3 trillion and by 40%.
Since then, the Fed has started quantitative tightening (QT) at $47.5 billion per month in June last year, and has increased quantitative tightening to $95 billion per month since September.
Reuters reported that the recent economic situation has led to inflation, and the theory that inflation is a monetary phenomenon is drawing attention again.
Prior to the spread of COVID-19, while M2 increased by more than 80% due to monetary easing policy for a long time, inflation has never exceeded the Fed’s target of 2%, so the credibility of this theory has declined, but the situation has changed in the past two years.
This is because inflation has worsened as the money supply has soared, and inflationary pressure has weakened amid a drop in the money supply last year.
