US: About the money

Research evidence excerpt

US: About the money

Michael Feroli (1-212) 834-5523 North America Economic Research J P M O R G A Nmichael.e.feroli@jpmorgan.com

JPMorgan Chase Bank NA 22 July 2026

US: About the money Monetary base refers to the principal liabilities of the central

bank – currency and bank reserves. While you and I have

• Fed chair Warsh wants to draw greater attention to access to currency, only commercial banks are allowed to

monetary aggregates hold reserves. For a given broad money aggregate, the money

multiplier is the ratio of that aggregate to the monetary base.

• The Fed has only very loose influence on monetary For example, the M2 multiplier = M2/monetary base (Figure

aggregates, which are mostly bank deposits

1).

• Moreover, the link between these aggregates and con-

sumer price inflation has broken down Figure 1: M2 money multiplier

• Similarly, there is no empirical evidence linking money Ratio: M2/monetary base

aggregates and asset prices 12

10In his recent Congressional testimony, Fed chair Warsh said,

“monetary policy has something to do with money.” This, and 8

the addition of a chart on M2 to the semiannual Monetary 6

Policy Report, has sparked renewed interest in the monetary

aggregates. Warsh didn’t say exactly what monetary policy 4

has to do with money. One possibility is that the Fed can use 2

its balance sheet to control monetary aggregates. Another 59 64 69 74 79 84 89 94 99 04 09 14 19 24

possibility is that the Fed can observe monetary aggregates to Source: J.P. Morgan, FRB

help forecast inflation. The former requires an institutional

In some institutional set-ups the money multiplier is also thelink between base money and broad money (a money multi-

inverse of banks’ required reserve ratio. Consider a simpleplier) which no longer exists.