Is The Fed REALLY Tightening? The Monetary Shell Game (Hint: M1 Money Growing at 8-10% YoY)

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The Federal Reservc Open Market Committee (FOMC) has “tightened” the Fed Funds Target rate twice since December 2015. One in December 2015 and once in December 2016.

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Well, 75 basis points is hardly “tight.” But what about The Fed’s asset purchases? The Fed ended their third round of asset purchases in October 2014.  While QE expansion has stoppped (for the moment), The Fed’s balance sheet is being reduced very slowly. Hardly monetary tightening, but not loosening either,

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But if we look at a third measure of monetary easing, M1 money supply, it is growing at a rapid rate.

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M1 money is growing at around 8-10% YoY.

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So while The Fed Funds Target rate is slowly risening and Fed asset purchases have curtailed, M1 Money Stock continues to grow at an unpredented rate YoY since the end of The Great Recession in June 2009.

m1multiplrt

The M1 Money Multiplier remains below 1 thanks to The Fed’s easing efforts. It is a shame that while M1 money grows at 8-10% YoY, average hourly earnings for 84% of the population are growing at only 2.5% YoY.

avghourlyearnyoysds

So while The Fed signals monetary “tightening,” check the third cup to find the EXPANSION pea!

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