Money Supply Keeps Shrinking

In its monthly release of money-supply data, the Federal Reserve announced that the M2 U.S. money supply for the month of September was $21,459.4 billion. This is a 2.52 percent increase from the same month last year, which is the smallest year-to-year increase since July 2010. 

Figure 1 reports the year-to-year change in M2 money supply for the U.S. dollar since 1959:

Figure 1

Source of raw data: Federal Reserve

U.S. money supply peaked in March this year, with an all-time-high of $21,856 billion. The M2 supply in September is 1.8 percent lower.

Consistent with monetary tightening, interest rates on U.S. debt have risen substantially since March. Back then, the 2-year median auction yield was 2.534 percent . In today's auction, the same note came out with a median yield of 4.388 percent. This is the second month in a row above 4 percent, with September at 4.22 and August at 3.25. Auction yield in July was 2.95 percent. 

One year ago, the yield at the 2-year auction was 0.575 percent. 

Investors tendered $108.7 billion at today's auction, of which $42 billion was accepted. This caused the T/A to rise to 2.59 from 2.51 in September and 2.32 in August. 

The 2-year note's auction yield has now almost caught up with its market yield, which on Tuesday ended at 4.42 percent. As Table 1 shows, the market yield for all maturities fell modestly in today's trade:

Table 1

Source: U.S. Treasury

The total of outstanding 2-year notes represent $1,472 billion in U.S. debt, equal to 4.7 percent of the total debt. The rise in yields at today's auction marginally nudges the estimated average cost of U.S. debt up from 1.95 percent to 1.96 percent. 

Since the start of the 2023 fiscal year on October 1, total U.S. debt has increased by one percent. The estimated interest cost on that debt has increased five times faster, i.e., by 5 percent. 

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We do not give investment advice. 

This blog provides analytical information solely for the purposes of 1) predicting the cost of the federal debt, and 2) for assessing the risk for a U.S. fiscal crisis. All information published here, forecasting and other, is based on publicly available data from the U.S. Treasury, including but not limited to approximately 65 percent of the current debt; on macroeconomic data, including but not limited to monetary policy decisions by the Federal Reserve; and on macroeconomic theory.