19  Money supply & interest rates

m2 = await (await fetch("../data/fred/M2SL.json")).json()
ffr = await (await fetch("../data/fred/FEDFUNDS.json")).json()
dgs10 = await (await fetch("../data/fred/DGS10.json")).json()
dgs2 = await (await fetch("../data/fred/DGS2.json")).json()
t10y2y = await (await fetch("../data/fred/T10Y2Y.json")).json()

viewof rates_window = Inputs.range([2, 50], {value: 25, step: 1, label: "Years to display"})

{
  const cutoff = new Date()
  cutoff.setFullYear(cutoff.getFullYear() - rates_window)
  const filt = arr => arr.filter(d => new Date(d.date) >= cutoff).map(d => ({...d, date: new Date(d.date)}))
  const data = [
    ...filt(ffr.observations).map(d => ({...d, series: "Fed funds rate"})),
    ...filt(dgs2.observations).map(d => ({...d, series: "2-year Treasury"})),
    ...filt(dgs10.observations).map(d => ({...d, series: "10-year Treasury"}))
  ]
  return Plot.plot({
    width: 800, height: 380, marginLeft: 60, marginBottom: 50,
    x: {type: "utc"},
    y: {label: "Interest rate (%)", grid: true},
    color: {legend: true, scheme: "set1"},
    marks: [
      Plot.ruleY([0]),
      Plot.line(data, {x: "date", y: "value", stroke: "series", strokeWidth: 1.8})
    ]
  })
}

// Term spread (10y minus 2y) — recession-predictive
{
  const cutoff = new Date()
  cutoff.setFullYear(cutoff.getFullYear() - rates_window)
  const filt = arr => arr.filter(d => new Date(d.date) >= cutoff).map(d => ({...d, date: new Date(d.date)}))
  return Plot.plot({
    width: 800, height: 280, marginLeft: 60, marginBottom: 50,
    x: {type: "utc"},
    y: {label: "10y − 2y term spread (pp)", grid: true},
    marks: [
      Plot.ruleY([0], {stroke: "#888"}),
      Plot.areaY(filt(t10y2y.observations), {x: "date", y: "value", fill: "#0e7c7b", fillOpacity: 0.3}),
      Plot.line(filt(t10y2y.observations), {x: "date", y: "value", stroke: "#0e7c7b", strokeWidth: 1.5})
    ]
  })
}

{
  const cutoff = new Date()
  cutoff.setFullYear(cutoff.getFullYear() - rates_window)
  const filt = arr => arr.filter(d => new Date(d.date) >= cutoff).map(d => ({...d, date: new Date(d.date)}))
  return Plot.plot({
    width: 800, height: 320, marginLeft: 70, marginBottom: 50,
    x: {type: "utc"},
    y: {label: "M2 money stock ($ billions, SA)", grid: true},
    marks: [
      Plot.line(filt(m2.observations), {x: "date", y: "value", stroke: "#b7410e", strokeWidth: 2})
    ]
  })
}

html`<div style="display: flex; gap: 0.8rem; flex-wrap: wrap; margin: 1rem 0;">
  ${[
    ["Fed funds rate", ffr.observations.at(-1)?.value, "%"],
    ["10-yr Treasury", dgs10.observations.at(-1)?.value, "%"],
    ["2-yr Treasury", dgs2.observations.at(-1)?.value, "%"],
    ["10y − 2y spread", t10y2y.observations.at(-1)?.value, "pp"],
    ["M2", m2.observations.at(-1)?.value, "$B SA"]
  ].map(([label, v, units]) => `
    <div class="kpi-card">
      <div class="kpi-label">${label}</div>
      <div class="kpi-value">${v != null ? v.toFixed(2) + ' ' + units : '—'}</div>
    </div>
  `).join('')}
</div>`

19.1 What to watch

The term spread (10y − 2y) is the single most reliable recession predictor in the U.S. dataset. When it inverts (goes negative), a recession typically follows in 6–18 months. Every U.S. recession since 1970 was preceded by inversion. Inversions also produce false alarms occasionally, but the absence of inversion has rarely been wrong.

M2 is the broad money stock — currency, demand deposits, savings deposits, retail money market funds. Watching its growth rate gives a sense of monetary expansion / contraction independent of what the Fed funds rate is doing.

Fed funds rate is the Fed’s main policy rate. The Fed influences it by adjusting the supply of bank reserves through OMO. The 2-yr Treasury tracks expected future fed funds; the 10-yr reflects long-run inflation and growth expectations.

19.2 Source

All from FRED. Daily series (DFF, DGS2, DGS10, T10Y2Y) update each business day; M2SL and FEDFUNDS update monthly.

md`*Last data refresh: ${ffr.last_updated || 'unknown'}.*`