Forget about big hair, Ray-Bans, and Donkey Kong. Don’t even think about Live-Aid, Thriller, and E. T. Above all else, the 1980s were the gravy days of the money supply aggregates.
Beginning in late 1979, the Fed built its policy approach around the aggregates – primarily M1 but occasionally M2, and policymakers also monitored M3 while experimenting with M1B and, later, MZM. But those were just the ‘official’ figures. Economists and pundits debated the Fed’s preferred measures while concocting their own home-brewed variations.
Notably, the Fed allowed interest rates to fluctuate as much as necessary to achieve its money growth targets. Fluctuate they did – rates soared and dipped wildly as a direct result of the Fed’s policy. The world, meanwhile, watched the action as attentively as a Yorkie watches breakfast, studying every wiggle in every M. Missing one wiggle could have meant the difference between exploiting the volatility that the Fed unleashed or being sunk by that same volatility.
This post was published at FinancialSense on 11/21/2017.