BETWEEN October 1978 and March 1979, the money stock measured by M] fell at a 1.7 percent annual rate, while measured by M2 it rose at a 2.4 percent annual rate (continuously compounded). These rates are sharply below those of the previous three years. In the thirty-six month period ending October 1978, M1 rose at an average annual rate of 6.9 percent, while M2 rose at a 9.4 percent rate. The deceleration of money growth since October is one of the sharpest in the postwar period. The purpose of this paper is to discuss the significance of this deceleration. Before discussing the major issues, I want to dispose of a possible, but I believe incorrect, interpretation of the monetary deceleration-the interpretation suggests that the sharp deceleration is part of a strategy of the administration and Reserve to produce an early and sharp recession in order to reduce inflation quickly. Although the policymakers clearly do want to slow the economy, a deliberate, sharp recession is inconsistent with both stated policy and fiscal policy actions, which I consider to reflect only a mildly restrictive policy stance.