Why does the US Fed No Longer Try to Control the Money Supply?

 

Milton Friedman famously argue in a Monetary History of the United States that the US Fed's failure to control the money supply led to the Great Depression. Chat GPT notes:

So, it should be somewhat confusing for Conservatives to the learn that, after the Volker Deflation, the Fed stopped monitoring the money supply. So (1) What Gives? and (2) If it wasn't the Money Supply, What Caused the Great Depression? ChatGPT again:

And, the Cybernetic System that describes the Fed (ChatGPT) is:

Just to check this line of reasoning, I've re-estimated the Fed Reaction function (from this post in the Notes below) this time including the Money Supply (M1 and M2). A few things to notice are (1) M1 and M2 are about equally weighted in FED1, the overall growth index. (2) M2 appears with smaller weights in the Unemployment Controller (FED2) and the BANK1 Controller (FED3) and (3) the M1-M2 controller, FED4, explains very little variance (less the 0.01%).

Over time, in the graphic above, FED4 is relatively constant with a small dip during the 2010 Great Recession, when the Fed was very active.

Notes

Expanded Fed Reaction Function Controller

The basic Fed Reaction function controller is presented in this post and does not include the Money Supply.