From the Capital Spectator:
Real M0 Money Supply’s Annual Trend Stays Negative In May
The hawkish chatter by Fed officials from a month ago is gone, but the hawkish bias in so-called base or high-powered money rolls on.
For the third straight month, the inflation-adjusted year-over-year change in M0 (as base money is sometimes labeled) contracted, dipping 3.6% in May vs. the year-earlier level. The red ink is one more headwind for the US economy, which has been posting mixed results this year.
History suggests that negative readings for this indicator’s annual comparisons are linked with elevated recession risk. The red ink in this corner by itself doesn’t ensure that the US is headed for a new downturn. But the negative bias in M0 isn’t helping—especially at a time when several other key indicators are wobbly–payrolls and industrial production, for instance.
Note that M0’s annual pace since last December has dipped in every month except for February. The negative bias implies that the Federal Reserve is pressing ahead with plans to squeeze monetary policy, albeit modestly. It’s debatable if that constitutes a regime change in this corner, but it’s no longer reasonable to dismiss the idea out of hand....MORE