Cash Supply Shows No Green Shoots for Fed Rates: Chart of Day

June 23 (Bloomberg) — For evidence that the Federal Reserve is still a long way off raising interest rates, look no further than the U.S. money supply, Westpac Banking Corp. said.

The CHART OF THE DAY shows that while the Fed’s balance sheet has grown, the so-called money-multiplier, the proportion of newly printed money that passes on to consumers, has dropped. M2, a gauge that includes savings and checking accounts, is 4.7 times the base cash supply, down from 9.3 times a year ago.

Of the $2.1 trillion that the Fed is injecting into the financial system, more than half, or 51 cents per dollar, is being posted back at the central bank by financial institutions in the form of excess reserves, a record high, according to Robert Rennie, head of currency research at Westpac in Sydney. That’s likely to ensure that the Fed’s Open Market Committee, which starts a two-day rate-setting meeting today, won’t be concerned about inflation, he said…

— Bloomberg.com

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