The Ballooning Money Supply May Be The Key To Unlocking Inflation In The U.S.
With the Fed and Congress pushing stimulus efforts, some investors are keeping a close eye on the U.S. money supply for signs of inflation’s long-awaited return. The “Fed may not be in control of Money Supply growth which means they won’t have control of inflation either, if it gets going,” Morgan Stanley writes. Normally characterized by slow, steady growth, the U.S. money supply has grown 20% from $15.33 trillion at the end of 2019 to $18.3 trillion at the end of July. Economist and former Treasury official Nathan Sheets counters that if businesses aren’t inclined to spend, the larger money supply may do little to fan inflation.inflation targets on a sustained basis is going to be a challenge.
With the Federal Reserve and Congress pushing stimulus efforts to new heights, some investors are keeping a close eye on a surge in the U.S. money supply for signs of inflation’s long-awaited return.
With a litany of metrics showing rapid growth in the value of money waiting in banks and other liquid accounts, investors from Ray Dalio to Paul Tudor Jones have warned that the era of tepid price rises may be coming to an end.
“It’s fair to say we have never observed money supply growth as high as it is today,” Morgan Stanley chief U.S. equity strategist Mike Wilson wrote this week.
The “Fed may not be in control of Money Supply growth which means they won’t have control of inflation either, if it gets going,” he added.
Chart of the M2 money supply, monthly, percent change from prior year.
There are several different ways economists measure the size of the U.S. money supply that are generally classified with the letter “M,” such as M0, M1 and M2.
The broad M2 measure includes cash, checking deposits, savings deposits and money market securities. Because of its wide definition, economists and investors tend to watch changes to the M2 supply as an indicator of the total money supply and future inflation.
– CNBC.