Monetary Base is the sum of currency (including coin) in circulation outside Federal Reserve Banks and the U.S. Treasury, plus deposits held by depository institutions at Federal Reserve Banks. It represents the total amount of a currency that is either in general circulation in the hands of the public or in the commercial bank deposits held in the central bank's reserves.
The Monetary Base, being mainly commercial bank money held at the Federal Reserve, is the purest measurement of how much money the Fed is creating out of thin air. If the Fed wants to try and shore up the economy it increases the Monetary Base, giving commercial banks more money (reserves) from which they can create other forms of money and credit via loans.
A declining Monetary Base constitutes deflation.
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