Short Term Perspective This short-term period shows how little this monetary aggregate (M2) and economic activity have in common lately. But over longer time horizons, the relationship may resume again.
Long Term Perspective Just about every economic indicator has its fifteen minutes of fame. Money supply, released every week by the Federal Reserve, was closely watched in the 1980s. Changes in money supply are supposed to mirror changes in economic growth. The missing link in the relationship is velocity - the rate at which money turns over in the economy. As you can see from the chart, money supply (using M2 which includes currency, checking accounts, money market accounts, and small savings accounts at banks) did loosely match up with GDP growth until the 1990s when the relationship broke down. Some diehard money supply fans remain, but there really aren't any on the FOMC.
