• News
    • Stocks
    • Banks and Finance
    • Companies
    • Crypto
    • Forex
  • Videos
  • Articles
    • Forex CRM
    • Crypto Payments
    • Trading
    • Crypto Exchange Business
    • Forex Business
    • Fintech
    • Liquidity
    • FinTech Awards
  • Liquidity Providers List
  • Crypto Payment Providers

Dark Theme

Less Money As Money Supply Shrinks. What Does It Mean For The World’s Inflation?

Jan 25, 2023

Less Money As Money Supply Shrinks. What Does It Mean For The World’s Inflation?

In the next few weeks, the Federal Reserve will make a critical decision. Markets expect the central bank to raise interest rates by a quarter of a percentage point, signaling a significant slowdown in record growth.

If that happens, a change in direction would be warranted, as higher rates seem to be working. The annual inflation rate fell for the sixth straight month in December, and it appears to be slowing further.

Another indication that the Fed's rate rises are having an effect: In December, the amount of money in the economy decreased. The growth of M2, a measure of the economy's money supply that comprises currency in circulation, balances in retail money-market funds, and savings deposits, among other things, has declined during the previous two years following a jump in 2020, but December figures show a decrease.

The December money supply growth rate was minus 1.3% as compared to a year earlier, the lowest ever and the first-ever decrease in M2 based on all available data. In 1959, the Fed began measuring the statistic. The rate of increase in November was already 0.01%, significantly below the record of 27% in February 2021.

snimok-ekrana-2023-01-25-v-18-13-02

This drop indicates a weakening economy and a significant impact of rising interest rates, which supports current recession forecasts. However, the statistics do not indicate a significant economic slowdown. Despite one of the strongest slowdowns, M2 is still 37% higher than before the epidemic. In other words, analysts believe that the amount of liquidity in the system remains large, indicating that more needs to be done to normalize the economy.

That isn't the only reason M2 rose — and has now fallen precipitously. We can look at the Fed's balance sheet operations to help us with this.

During the epidemic, the Fed's "quantitative easing," or bond purchasing, boosted the economy and the central bank's balance sheet to about $9 trillion.The Fed is decreasing liquidity by reducing its total assets through quantitative tightening.

The Fed's total assets were down 5.3% on January 18 compared to last year's peak, but the balance sheet is still more than twice what it was in February 2020 before the epidemic began. That's a lot of money, but the Fed doesn't want to risk upsetting financial markets by tightening further.

The Fed “does not want to convert monetary tightening into an episode of financial instability,” said Acharya, who along with three other economists published a paper in August titled Why Shrinking Central Bank Balance Sheets is an Uphill Task.

Finally, when M2 falls more, it should assist in tempering inflation by crimping demand and lowering the capacity to support bank loans and other financing for families, enterprises, and financial market transactions, according to Nathan Sheets, Citi's global chief economist.

However, investors should not assume that falling M2 always indicates an economic downturn, notes Richard Farr of Merion Capital Group. M2 has to decline by at least another trillion dollars to be meaningful, according to him.

Well, that's still quite a ways away.

Subscribe Our Newsletter

6 Bank Stocks for 2022 With Diversified Revenue Streams and Strong Management
6 Bank Stocks for 2022 With Diversified Revenue Streams and Strong Management

"Regardless of industry, economic, or other conditions, the two banks' management teams will find a way to create greater long-term returns for investors," Cooper told Barron's.

Stocks
China’s Anti-Monopoly Crackdown Is Just an Excuse
China’s Anti-Monopoly Crackdown Is Just an Excuse

Is China truly enforcing anti-monopoly laws? The record-breaking fines levied in recent months lean strongly in this direction. However, as is customary in China, state-owned enterprises are subject to different restrictions than private firms.

Banks and Finance
Constantine

What is Crypto Leverage Trading And How Does It Work?
Trading is a fundamental concept of economics involving the purchase and sale of valuables.

discover
Top 5 Most Reliable Forex Brokers of 2022

Alexander

Top 5 Most Reliable Forex Brokers of 2022

The Forex market is the world's largest and most liquid financial marketplace, which allows traders to buy and sell currencies 24 hours a day. In 2022, a series of unprecedented economic and geopolitical developments in the global arena sparked heightened volatility in numerous currencies worldwide, which made trading on the Forex market particularly interesting.

FinTech Awards

Contact Us

Contact the Liquidity Provider
for any questions and advertising inquiries b2broker

    Please fill out this contact form to get in touch with us

    / 3000

    By clicking “Get in touch” button, you agree to the privacy policy

    Tamta

    What Is Crypto Arbitrage Trading?

    https://liquidity-provider.com/app/uploads/2023/06/cover-1-800x540.jpg

    Tamta

    Guide to Craiyon: How To Use a New DALL-E Mini

    https://liquidity-provider.com/app/uploads/2023/06/cover-5-800x540.jpg

    Tamta

    Credit Cards vs. Debit Cards

    https://liquidity-provider.com/app/uploads/2023/06/cover-800x540.jpg

    Tamta

    Investing In Private Equity: What Should You Know?

    https://liquidity-provider.com/app/uploads/2023/05/cover-7-800x540.jpg

    Tamta

    What is Data Analytics? Techniques, Tools, Methodology, and More

    https://liquidity-provider.com/app/uploads/2023/05/cover-6-800x540.jpg

    Tamta

    Bitcoin Halving is Coming: What Does it Mean for the Crypto Market?

    https://liquidity-provider.com/app/uploads/2023/05/cover-4-800x540.jpg

    Tamta

    Crypto Token Supply From A to Z

    https://liquidity-provider.com/app/uploads/2023/05/cover-3-800x540.jpg

    Tamta

    What Is ChatGPT, And How Can You Use It?

    https://liquidity-provider.com/app/uploads/2023/05/cover-2-800x540.jpg

    Anton

    Trading on Autopilot: The Rise of Crypto Trading Bots

    https://liquidity-provider.com/app/uploads/2023/05/cover-1-800x540.jpg

    Tamta

    Crypto Investing vs. Crypto Trading: What’s The Difference?

    https://liquidity-provider.com/app/uploads/2023/04/cover-5-800x540.jpg

    Tamta

    Understanding Indexed Universal Life Insurance (IUL)

    https://liquidity-provider.com/app/uploads/2023/04/cover-4-800x540.jpg

    Tamta

    Best Investment Strategies For Beginners

    https://liquidity-provider.com/app/uploads/2023/04/image1-800x540.jpg

    Tamta

    Understanding Perpetual Futures: How Do They Work?

    https://liquidity-provider.com/app/uploads/2023/04/cover-3-800x540.jpg

    Tamta

    What Is A Bitcoin Stock-To-Flow Model? Beginner’s Guide

    https://liquidity-provider.com/app/uploads/2023/04/cover-2-800x540.jpg

    Tamta

    Best Decentralized Crypto Exchanges In 2023

    https://liquidity-provider.com/app/uploads/2023/04/cover-1-800x540.jpg

    Tatma

    Best High-Yield Savings Accounts For March 2023

    https://liquidity-provider.com/app/uploads/2023/04/cover-800x540.jpg

    Tamta

    Crypto Trading For Beginners

    https://liquidity-provider.com/app/uploads/2023/03/cover-8-800x540.jpg

    Tamta

    How To Make Money With Cryptocurrency

    https://liquidity-provider.com/app/uploads/2023/03/cover-7-800x540.jpg

    Tamta

    What Is A Candlestick Chart?

    https://liquidity-provider.com/app/uploads/2023/03/cover-6-800x540.jpg

    Constantine

    White Label Forex Software — Ultimate Guide on How to Choose The Best Industry Solution

    https://liquidity-provider.com/app/uploads/2023/03/cover-3-300x203.jpg

    Tamta

    Forex Trading: A Beginner’s Guide

    https://liquidity-provider.com/app/uploads/2023/03/cover-2-300x203.jpg

    Tamta

    How to Create a Cryptocurrency

    https://liquidity-provider.com/app/uploads/2023/03/cover-1-1-800x540.jpg

    Tamta

    Top Ten Richest People In The World, 2023

    https://liquidity-provider.com/app/uploads/2023/03/cover-4-1-300x203.jpg

    Constantine

    What’s at Stake? Here’s How to Avoid Scam Tokens

    https://liquidity-provider.com/app/uploads/2023/03/cover-5-300x203.jpg
    • News
      • Stocks
      • Banks and Finance
      • Companies
      • Crypto
      • Forex
    • Articles
      • Forex CRM
      • Crypto Payments
      • Trading
      • Crypto Exchange Business
      • Forex Business
      • Fintech
      • Liquidity
      • FinTech Awards
    • More
      • Videos
      • Liquidity Providers List
      • Crypto Payment Providers
    [email protected]

    © 2023 Liquidity Provider. All Rights Reserved

    Privacy Policy Cookie Policy