Money and Financial Markets
Although financial headlines announce changes in the target federal funds rate, the nature of those changes cannot be appreciated without understanding their effect on the money supply. This can be observed in the narrowly defined, more liquid monetary aggregates, such as the sweep-adjusted monetary base and sweep-adjusted M1. During periods in which the FOMC lowered (raised) rates, both the sweep-adjusted monetary base and M1 tended to accelerate (decelerate). Their growth rates accelerated from an anemic 2% for both aggregates in 2000 to 7.3% for the monetary base and 6.2% for M1 since January 2003. Both of these increases roughly coincide with the current round of easing, which began in January 2001.
Suggested citation: "Money and Financial Markets," Federal Reserve Bank of Cleveland, Economic Trends, no. 03-06, pp. 05-07, 06.01.2003.