The Fed’s Interest-Rate Hikes Seem to Be Working. Here’s How You Can Tell.

The Federal Reserve faces another big decision this coming week. Markets expect it to hike rates by a quarter of a percentage point, a marked slowdown as inflation cools.

But another metric also suggests that rate hikes are working: the amount of money in the economy, known as M2. The growth of M2—a measure that includes currency in circulation, balances in retail money-market funds, savings deposits, and more—had been slowing over the last two years. In December, the growth rate went negative by 1.3% versus a year earlier, marking the first-ever decline since the Fed started publishing M2 data in 1959. M2’s recent peak in February 2021 was 27%.