Economic News Blog
Posted by: Steven Kline, Jr. 18. September 2015

Monetary Base Back above $4 Trillion

In August 2015, the monetary base was $4.002 trillion. This was a slight increase from the previous month and put the monetary base above $4 trillion for the first time since April. Since July 2014, just before the end of QE, the monetary base has been bouncing above and below $4 trillion. Compared with one year ago, the monetary base decreased for the third month in a row.  If the monetary base stays at its current level, then it would contract month-over-month for the next two months as well. The month-over-month rate of change contracted 2.3 percent, which was the fastest rate of contraction since November 2010 and the second fastest since December 2000. In fact, there are only three months since the end of WW2 with a faster rate of contraction than August 2015. 

The annual rate of change slowed to 3.9 percent, which was the slowest rate of growth since April 2013. The annual rate of change continued to decelerate in August, as it has done since June 2014. This is a negative sign for future capital spending. Unless the Federal Reserve starts increasing the money supply, the annual rate of change will continue to decelerate.

You can see how the monetary base leads various machine tool sales and consumption data as well as primary plastics processing equipment at our monetary page.

The real 10-year treasury rate is a leading indicator for the adjusted monetary base. The year-over-year change in the real 10-year treasury has increased the last three months. This indicates a slower rate of growth in the monetary base. However, 10-year rates are being influenced by the Fed's own purchases and investors front-running the Fed's purchases. So, the 10-year may not be an accurate indicator of the money supply at the moment.

Also, the U.S. dollar major exchange rate (the USD compared to the other major currencies of the world) and the U.S. dollar broad exchange rate (the USD compared to most world currencies) appear to be good leading indicators of the U.S. monetary base. The US dollar against the other major currencies of the world is growing at almost its fastest rate ever. Normally, this indicates an expansion of the monetary base is forthcoming. But, the Fed seems to be moving the monetary base in the opposite direction.

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