The amount of money in circulation in the United States is expanding rapidly, a warning sign that inflation could continue to rise.
The so-called M2 money supply includes currency, savings accounts, and retail money market funds. Money supply rose to a one-year high, increasing 0.8% from a year ago, according to data released Tuesday afternoon.
This is the first time the money supply has increased year-over-year since it started shrinking after the 2022 interest rate hike. As a result of this increase, the money supply is now higher than at any time since March of last year.
M2 has expanded in three of the past six months and four of the past five weeks.
The rise shows that the Fed’s fight against inflation is running out of steam. The Consumer Price Index in March he rose 3.47% compared to 12 months ago, accelerating from the 3.17% rise he recorded in the previous month. This was the highest inflation rate since September last year.
Inflation typically follows the path of M2 with a lag, but the timing of the lag is unknown and variable. Growth in M2 signals the possibility of further inflation later this year, and perhaps even next year. This could further delay the Fed’s interest rate cuts, or even prompt the Fed to raise rates, indicating that current market prices are viewed as completely unexpected on Wall Street.
M2 is currently 36 percent above pre-pandemic levels, but about 4 percent below its peak in April 2022.
