Investopedia / Madelyn Good evening
In May 2024, the Federal Reserve will adjust the supply of M1 seasonally.
The Federal Reserve presents an existing account of the United States’ cash supply, month by month, dating back to 1999 (the Fed calls the cash supply).
A country’s cash source has a significant effect on its macroeconomic profile, specifically with regard to interest rates, inflation, and the business cycle. When the Federal Reserve limits the source of cash through restrictive financial policy or “hawks,” interest rates and borrowing burden increase.
There is a delicate balance when it comes to making those decisions. Limiting the source of cash would likely slow inflation, as the Federal Reserve wants, but there is also the threat that it will slow economic expansion too much, leading to more unemployment.
A central bank regulates the amount of cash that can be held in a country. Through financial policy, a central bank can adopt an expansionary or restrictive policy.
An expansionary policy aims to increase the supply of cash. For example, the central bank can simply interact in open market operations. This means that you will buy short-term US Treasuries with newly minted currency. This cash thus enters circulation.
A contractionary policy would require the sale of Treasury bonds. This is part of the cash circulating in the economy.
US cash is divided into two main categories, M1 and M2. M0 is included in M1 and M2.
Think of a primary bank as a microcosm of the economy as a whole. The local population has prospered in recent years and therefore has more cash to save. They deposit it in the bank. The bank helps keep some of the deposits in a deposit box but lends the most to other Americans and businesses. Loans are repaid with interest, and the bank has more cash to lend. Times are good and the cash source is increasing.
But what happens when these are such good times? Bank deposits are falling because other people are surviving or, worse, wasting their jobs. The bank has less cash to lend. Regardless, businesses and Americans are hesitant to spend a lot of cash because of the weak economy. The cash source decreases.
The Federal Reserve. Money Supply Measures – Publication H. 6″.
The Federal Reserve. “What is the offer? Does it matter?”
The Federal Reserve. Money Supply Measures – Publication H. 6″.
The Federal Reserve. “Stop the M3”.