The broadest measure of U.S. money supply–the so-called M3–has less than a month to live, but its swan song continues to be one of growth, and growth that’s notably higher relative to that of M2, the official replacement for the doomed series.
We’ve written previously on the impending death of M3 (see here, here and here), and found reason to question the Fed’s decision to terminate the most-expansive measure of dollars floating about in the economy as of March 23. We won’t repeat ourselves, other than to reiterate our original point: M3 growth is well above M2’s, as the chart below reveals. That’s been true in the past, and remains true now, based on the latest update on money supply. According to the Fed, seasonally adjusted M3 rose by 7.9% for the 52 weeks through February 14, or nearly twice the rate of increase for the narrower definition of money supply labeled M2.
Why is the central bank killing the brand of money supply that’s growing the fastest, which just happens to be at a rate that’s well above the yield on a 10-year Treasury (4.58%), the latest estimate on the annual rise in inflation (4.0%), and the annual pace of economic growth in inflation-adjusted terms (1.6%)? The Fed is mum on the issue, other than to say that M3 is redundant, and therefore M2 should suffice. The numbers suggest otherwise.