Federal Reserve Money Supply
Why is it important? According to the legislation passed in 1978, the Federal Reserve was mandated to set annual targets for money supply growth. At the time, there was a high link between money supply growth and the overall economic growth, as measured by the GDP. However, the relationship declined with the changes in banking accounts as well as the proliferation of financing companies, the Fed however announced that it would no longer set targets for growth of the money supply as a matter of policy upon the expiry of the legislation. In spite of that, it has remained an important indicator for predicting inflation and the spending patterns among consumers. The money supply is still a major driving force behind the direction of economic growth. Failing to set targets of money supplies has given the market a liberal chance at moving at its own pace. The federal board can only move in to check on any detrimental excesses that may negatively affect the economy. Evaluation of money su...