U.S. Money Velocity Remains 20% Below Pre-Pandemic Levels

Money velocity in the United States remains approximately 20% below pre-pandemic levels, creating an economic anomaly where trillions of dollars stay dormant in bank accounts and corporate balance sheets. This stagnation persists despite the Federal Reserve System implementing a historic balance sheet expansion during the pandemic.

Corporate cash reserves have risen to over $8 trillion, a 35% increase over pre-pandemic levels, while consumers continue to face high credit card debt. This environment has made cash more attractive through money market yields around 4%, though these yields are viewed as symptoms of a slower economy.

Recent tightening by the central bank has slowed money supply growth but has failed to increase velocity. This failure is potentially linked to the high interest paid to banks on excess reserves. The resulting lack of circulation has contributed to stubborn inflation and the failure of traditional 60/40 portfolio strategies.