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News Link • Federal Reserve

Money Velocity Could Be A Problem When The Fed Takes Its Foot Off The Interest Rate Brake Pedal

• Business Insider
 There is another component of M2. It has me baffled. It too is at a record. In this case it’s a record low. I’m sure this important. I don’t know why it’s happening. I don’t know what the consequences of this will be.
My thoughts on the chart:

- It’s fairly clear that sharp declines in the velocity of money is consistent with periods of recession. But..

- If recessions are the cause of the decline in velocity, what the heck is going on today? We are now three years out of recessions, and velocity keeps dropping.

- Behind each of the recessions is the Federal Reserve. To offset a slowdown in the economy, it drops interest rates. When interest rates fall, velocity declines.

- As interest rates have been forced to zero for years past the last recession, the velocity of money has continued to decline.

- There are no periods in history where sustained economic expansion has occurred while money velocity is declining.

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