- Most observers believe the Fed eased for too long after the recovery period from COVID. But what is happening now? With a housing downturn, a deposit flight from banks, and declines in Federal spending, US money supply is contracting for the first time since the late 1940s.
- Money supply growth was a traditional leading economic indicator. Services inflation, a focus of the Fed, is a member of the Index of Leading Economic Indicators. As the chart shows, M2 growth leads inflation by a full two years. This points to a sharp deceleration in inflation in 2024, with downside risks to price stability unless the Fed eventually reverses course.
- For a full discussion, please read Quadrant | One Shock, Two Recessions published on March 30, 2023.
