M1 is a monetary aggregate that represents the sum of currency in circulation, demand deposits at commercial banks, and other liquid deposits. It is the most liquid component of the money supply, as it includes assets that can be easily converted into cash.
Key Facts
- Definition: M1 is a monetary aggregate that represents the sum of currency in circulation, demand deposits at commercial banks, and other liquid deposits.
- Components of M1: M1 includes physical currency outside the U.S. Treasury and Federal Reserve Banks, demand deposits at commercial banks (excluding certain amounts held by depository institutions, the U.S. government, and foreign banks), and other liquid deposits, which consist of negotiable order of withdrawal (NOW) and automatic transfer service (ATS) accounts at depository institutions, share draft accounts at credit unions, and demand deposits at thrift institutions.
- Changes in M1: Before May 2020, M1 consisted of currency, demand deposits, and other checkable deposits (OCDs). However, starting from May 2020, M1 was revised to include other liquid deposits, which consist of OCDs and savings deposits (including money market deposit accounts).
- Measurement: M1 is measured in billions of dollars and is seasonally adjusted.
- Frequency: M1 is reported on a monthly basis.
Components of M1
M1 includes the following components:
- Currency in circulation: This includes physical currency outside the U.S. Treasury and Federal Reserve Banks.
- Demand deposits at commercial banks: This includes demand deposits at commercial banks, excluding certain amounts held by depository institutions, the U.S. government, and foreign banks.
- Other liquid deposits: This includes negotiable order of withdrawal (NOW) and automatic transfer service (ATS) accounts at depository institutions, share draft accounts at credit unions, and demand deposits at thrift institutions.
Changes in M1
Before May 2020, M1 consisted of currency, demand deposits, and other checkable deposits (OCDs). However, starting from May 2020, M1 was revised to include other liquid deposits, which consist of OCDs and savings deposits (including money market deposit accounts). This change was made to better reflect the increasing liquidity of savings deposits.
Measurement and Frequency
M1 is measured in billions of dollars and is seasonally adjusted. It is reported on a monthly basis by the Federal Reserve Bank of St. Louis.
Conclusion
M1 is a narrow measure of the money supply that includes the most liquid components of the economy. It is used by economists and policymakers to track changes in the money supply and to assess the overall health of the economy.
Sources:
- FRED Economic Data: M1 (M1SL) | FRED | St. Louis Fed
- Money Stock Measures – H.6 – December 26, 2023
- M1 Money Supply: How It Works and How to Calculate It
FAQs
What is M1?
M1 is a monetary aggregate that represents the sum of currency in circulation, demand deposits at commercial banks, and other liquid deposits. It is the most liquid component of the money supply.
What are the components of M1?
M1 includes currency in circulation, demand deposits at commercial banks, and other liquid deposits, such as negotiable order of withdrawal (NOW) and automatic transfer service (ATS) accounts at depository institutions, share draft accounts at credit unions, and demand deposits at thrift institutions.
How is M1 measured?
M1 is measured in billions of dollars and is seasonally adjusted.
How often is M1 reported?
M1 is reported on a monthly basis by the Federal Reserve Bank of St. Louis.
Why was M1 revised in May 2020?
M1 was revised in May 2020 to include other liquid deposits, such as savings deposits and money market deposit accounts. This change was made to better reflect the increasing liquidity of these deposits.
How does M1 affect the economy?
M1 is a key indicator of the money supply and can impact inflation, interest rates, and economic growth.
How is M1 controlled?
M1 is controlled by the Federal Reserve through monetary policy. The Fed can use tools such as open market operations, changes in reserve requirements, and changes in the discount rate to influence the money supply.
What is the current value of M1?
The current value of M1 can be found on the Federal Reserve Bank of St. Louis website. As of November 2023, M1 was $18,045.8 billion.