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.
