• Investing
  • Stock
Round Table Thoughts
  • Economy
  • Editor’s Pick
Home Investing Take cover as M2 growth hits zero and monetary lags bite back
Investing

Take cover as M2 growth hits zero and monetary lags bite back

by December 30, 2022
by December 30, 2022 0 comment
Share
0
FacebookTwitterPinterestWhatsapp

Throughout this year, the Jerome Powell-led Fed has pushed rates higher at an unprecedented pace.

Of course, the panic among policymakers to tighten monetary policy is itself largely a product of the Fed’s prolonged easy-money policies and years of rock-bottom interest rates.

In a desperate bid to keep households afloat, there came a sugar rush of financial handouts and ultra-loose fiscal policy shortly after strict lockdowns and a total freeze on economic activity.

The turn from being helplessly stuck below target inflation to the completely alarming price surges did not take long to materialize.

Source: FRED Database

Quantitative tightening

The tightening stance of the Fed extends to the amount of cash in circulation as well.

The famed (or now infamous) M2 indicator has continued to shrink, with monthly figures of the seasonally adjusted money supply contracting for the fourth consecutive month.

Source: SchiffGold

In an article, SchiffGOLD found,

When looking at the average monthly growth rate, before Covid, November historically expands at an annualized rate of 5.2%. This year missed by an incredible 870 bps.

Usually, the last quarter of the year sees a strong uptick in money supply which only makes this divergence from the trend more pronounced, and more painful.

Crucially, as shown in the graph below, annual M2 growth has hit zero for the first time in history.

Source: FRED Database

The lags strike back?

Although it appears as though price pressures are beginning to bend to the will of the Fed, the price of inflation is about to get even higher.

That’s because society has yet to see the dreaded lag effect truly kick in.

Danielle DiMartino Booth, the CEO and Chief Strategist of Quill Intelligence, who has nearly a decade of experience as an advisor to the Dallas Fed, noted,

The Fed recently published a paper that showed instead of an 18-month period over which time you start to really feel the pinch of tighter monetary policy, now it’s really down to just 12 months.  

It seems that Fed economists are communicating that Q1 will see a harsh downturn and possibly the onset of a full-blown recession.

Another year, another quarter

The Fed’s decision to hike by an additional half point in December means that the tightening game is very much on.

Come January 2023, the FOMC will go up at least another quarter of a per cent.

Market data reflect this expectation with the CME FedWatch Tool reporting about a seven to three split between the likelihood of a quarter and half-point rise, respectively.

A Republican-controlled House of Representatives will likely be unwilling to offer much in way of fiscal buffers to debt-burdened households, given the devastation wrought on the economy by the quantum of direct transfers in the past two years.

DiMartino Booth added that she doesn’t expect tax refunds and forgiveness measures to be anywhere as accommodative as they were during 2022, meaning family budgets will be highly stressed.

Ultimately, as many economists have been arguing, the soft-landing option is no longer in the realm of possibility.

If the Fed were to somehow stay its course, the economic consequences would be devastating.

Even with the effect of the monetary lags now at the Fed’s doorstep, difficult fiscal conditions becoming deeply entrenched, and the gloom around job creation particularly in lower-skilled sectors (which you can read about here), the Fed will continue to talk tough for the time being and hike by a quarter per cent in the coming weeks.

The post Take cover as M2 growth hits zero and monetary lags bite back appeared first on Invezz.

You Might Also Like
  • 3Commas admits to API keys leak after anon reveals database
  • Zscaler stock opened 10% down on Friday: how come?
  • Here’s what Fed Chair Jerome Powell’s remarks mean for the market
  • Cleveland-Cliffs stock has upside to $26: Morgan Stanley
Share
0
FacebookTwitterPinterestWhatsapp

previous post
Putting Aggregate Demand and Aggregate Supply to Work
next post
Free-Market Capitalism is the Next American Economy

You may also like

The UK Plans to Do Away With Ring-Fencing Regulations in...

November 30, 2022

Tesla’s stock price crashes, down -9% on missing 4Q2022 consensus

January 3, 2023

WisdomTree unveils nine new blockchain-enabled funds

December 14, 2022

Should I buy Deere & Company shares after the Q4...

November 24, 2022

Coinbase stock soars 11% amid $100 million settlement with NY...

January 4, 2023

American vs. European Options: The Differences

March 23, 2023

Jim Cramer sees more upside in the Etsy stock

December 1, 2022

UK retail sales slip 0.4% as households feel inflation pinch

December 16, 2022

Elon Musk may soon step down as Twitter CEO: buy...

December 19, 2022

2022 Inflation statistics: how bad is it worldwide?

December 2, 2022

    Stay updated with the latest news, exclusive offers, and special promotions. Sign up now and be the first to know! As a member, you'll receive curated content, insider tips, and invitations to exclusive events. Don't miss out on being part of something special.


    By opting in you agree to receive emails from us and our affiliates. Your information is secure and your privacy is protected.

    Recent Posts

    • Week Ahead: NIFTY Stays In A Defined Range; Moving Past This Level Crucial For Resumption Of Upmove

      May 31, 2025
    • Breakouts, Momentum & Moving Averages: 10 Must-See Stock Charts Right Now

      May 31, 2025
    • Leadership Rotation Could Confirm Corrective Phase

      May 30, 2025
    • Run Your Stock Portfolio Like a Pro Sports Team

      May 30, 2025
    • U.S. foreign tax bill sends jitters across Wall Street

      May 30, 2025

    Popular Posts

    • 1

      Trump-era China sanctions ended by Biden may be...

      June 27, 2024 2,765 views
    • 2

      Walz’s honeymoon with China gets fresh scrutiny as...

      August 9, 2024 2,472 views
    • 3

      Biden appointee played key role in recruiting Chinese...

      June 25, 2024 2,451 views
    • 4

      Shein’s global ambitions leaves some cybersecurity experts fearful...

      July 10, 2024 2,432 views
    • 5

      Harris VP pick spent years promoting research facility...

      August 29, 2024 2,309 views

    Categories

    • Economy (7,009)
    • Editor's Pick (2,106)
    • Investing (538)
    • Stock (2,582)

    Popular Posts

    • 1

      Trump-era China sanctions ended by Biden may be revived under new House GOP bill

      June 27, 2024
    • 2

      Walz’s honeymoon with China gets fresh scrutiny as Harris camp blasts ‘lying’ critics

      August 9, 2024
    • 3

      Biden appointee played key role in recruiting Chinese businesses to Delaware: ‘Longtime friends’

      June 25, 2024
    • 4

      Shein’s global ambitions leaves some cybersecurity experts fearful of Chinese spy threats

      July 10, 2024
    • 5

      Harris VP pick spent years promoting research facility that collaborated with ‘Chinese military company’

      August 29, 2024

    Latest News

    • Week Ahead: NIFTY Stays In A Defined Range; Moving Past...

      May 31, 2025
    • Breakouts, Momentum & Moving Averages: 10 Must-See Stock Charts Right...

      May 31, 2025
    • Leadership Rotation Could Confirm Corrective Phase

      May 30, 2025

    Categories

    • Economy (7,009)
    • Editor's Pick (2,106)
    • Investing (538)
    • Stock (2,582)

    Disclaimer: RoundTableThoughts.com, its managers, its employees, and assigns (collectively “The Company”) do not make any guarantee or warranty about what is advertised above. Information provided by this website is for research purposes only and should not be considered as personalized financial advice. The Company is not affiliated with, nor does it receive compensation from, any specific security. The Company is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendation. Any investments recommended here should be taken into consideration only after consulting with your investment advisor and after reviewing the prospectus or financial statements of the company.

    Copyright © 2024 RoundTableThoughts.com. All Rights Reserved.

    Round Table Thoughts
    • Investing
    • Stock
    Round Table Thoughts
    • Economy
    • Editor’s Pick

    Read alsox

    UBS reveals its top apparel stock...

    December 8, 2022

    U.S. army picks Textron over Lockheed...

    December 6, 2022

    Should you buy the euro amid...

    November 25, 2022
    Sign In

    Keep me signed in until I sign out

    Forgot your password?

    Password Recovery

    A new password will be emailed to you.

    Have received a new password? Login here