The critical economic question behind the economic outlook for 2024 is this: Do measures of money still define the outlook for the U.S. economy as they have in the past? Despite having a restrictive monetary policy for more than a year, spending and real growth accelerated in the third quarter of 2023 and appear to have ended the year in decent shape.
This divergence between money growth and economic growth raises a key question—does money supply still matter? Is it the prime factor controlling changes in spending? Or, has there been a fundamental change between money and its relation to the economy?
The following charts show the history of two-year annualized changes in total spending (GDP) and like changes in two measures of money. The first money measure we’ll call raw money, which consists of currency plus Fed securities holdings minus bank reserves. Changes in […]
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