U.S. M2 Money Supply Grows Fastest in Three Years Amid Inflation Concerns
The U.S. M2 money supply grew at its fastest pace in three years, reaching a year-over-year increase of approximately 5.4% as of July. This growth has raised concerns about inflationary pressures despite the current CPI reading of 3.4%, which is down from over 9% seen during 2022 but still above the Federal Reserve's target of 2%. The Fed recently resumed bond purchases under a new program called reserve management purchases (RMP), reversing earlier quantitative tightening efforts that had been draining liquidity. The M2 money supply includes cash, checking and savings accounts, as well as time deposits and money market funds. Some economists view it as a leading indicator of inflation because increased money circulation can drive demand and prices higher. The Fed's recent actions suggest an effort to manage overnight funding markets that had become too tight. There is ongoing debate among policymakers about the predictive power of M2 for inflation, with differing views from former Chair Jerome Powell and current Chair Kevin Warsh.
Topics: CPI Federal Reserve inflation M2 money supply