Massive Changes in Money Supply Measurement

The Federal Reserve is making massive changes to the way they report on the money supply. Besides a bunch of smaller reporting changes, the largest change is happening to the way that the Fed reports savings deposits. Historically, savings deposits have been recognized as a component of the M2 money supply. M2 includes all the components of M1 plus elements considered "near money". Savings deposits were previously considered to be "near money".

The Fed changed all this on March 15, 2020 by removing the reserve requirement on all depository institutions. The Fed website states "This action eliminated reserve requirements for all depository institutions and rendered the regulatory distinction between reservable “transaction accounts” and nonreservable “savings deposits” unnecessary". This caused the Fed to remove the transfer limits on savings accounts.

Therefore, savings deposits will become officially part of the M1 money supply. The Fed will adjust historical data back to May 2020 to adjust for this new normal. The Fed even provided a glimpse of this new change in a nifty graphic:

As one can clearly see in the graphic above, the M1 measure of the money supply skyrocketed and is nearing equivalence with the M2 measure. The only difference remaining are small denomination time deposits (consumer certificate of deposits) and retail money funds.

The Austrian perspective on calculating the money supply (TMS2) is unchanged as savings deposits were already considered money.

Check out our interactive dashboard of historical US money supply data.