Charles Schwab Market Perspective - June 11, 2020
" ... Much of the stock market’s recent rally can be attributed to the massive provisions of liquidity and income support from the Federal Reserve and Congress—providing relief measures equal to nearly 30% of the Congressional Budget Office’s 2020 estimated U.S. gross domestic product. Specifically on the monetary front, the Fed’s balance sheet has swelled to $7.2 trillion in an effort to ease financial system strains during the crisis.
The central bank’s large-scale asset purchases have stoked fears of impending inflation, but the risk appears low in the near term. As you can see in the chart below, while money supply has skyrocketed, the velocity of money has moved in the opposite direction. In order to produce inflation, money velocity typically increases as banks lend more; however, banks are currently accumulating assets on their balance sheets and thus keeping money out of circulation.
Money supply has increased, but money velocity has decreased
![[Bild: M2%2520Money%2520Supply%2520vs.%2520Velo...k=R8ugfrTT]](https://international.schwab.com/sites/g/files/eyrktu651/files/styles/embedded_385/public/M2%2520Money%2520Supply%2520vs.%2520Velocity_0.png?itok=R8ugfrTT)
https://international.schwab.com/content...erspective
" ... Much of the stock market’s recent rally can be attributed to the massive provisions of liquidity and income support from the Federal Reserve and Congress—providing relief measures equal to nearly 30% of the Congressional Budget Office’s 2020 estimated U.S. gross domestic product. Specifically on the monetary front, the Fed’s balance sheet has swelled to $7.2 trillion in an effort to ease financial system strains during the crisis.
The central bank’s large-scale asset purchases have stoked fears of impending inflation, but the risk appears low in the near term. As you can see in the chart below, while money supply has skyrocketed, the velocity of money has moved in the opposite direction. In order to produce inflation, money velocity typically increases as banks lend more; however, banks are currently accumulating assets on their balance sheets and thus keeping money out of circulation.
Money supply has increased, but money velocity has decreased
https://international.schwab.com/content...erspective
