The broadest measure of the US money supply (derived from the quarterly Fed flow of funds accounts and comprising currency, checkable deposits, time deposits, savings deposits, foreign deposits, money market mutual funds and repurchase agreements held by households, non-financial businesses, insurance companies and pension funds) rose by 8.9% annualised during the first quarter – see first chart.

QE2 has been more effective in stimulating broad money expansion than QE1 because the Fed has bought a larger proportion of securities from the non-bank private sector. (Purchases from monetary institutions and foreign investors, by contrast, have no first-round impact on the money supply.) According to the flow of funds accounts, the Fed bought $1.39 trillion annualised of Treasuries during the first quarter while the household sector – including hedge funds – sold $1.14 trillion.

Part of the boost to household liquidity has been transferred to non-financial businesses via increased inflows to equity and corporate bond mutual funds. Non-financial business broad money rose by 7.5% in the year to the first quarter – the largest annual increase since the first quarter of 2008.

The pick-up in broad money confirms a positive signal from narrower aggregates, suggesting solid economic growth over the remainder of 2011. Monetary expansion could slow after QE2 ends but any impact on the economy would be delayed until early 2012. Improving credit trends, moreover, could compensate for the loss of Fed stimulus: banks' loans and leases expanded in May for the first time since October 2008, reflecting rapid growth of commercial and industrial lending – second chart.