Is the Fed Abandoning Its 2% Target as M2 Surges?

The Fed’s printing presses are already warmed up!

Just look at the money supply!

The Federal Reserve runs the nation’s monetary policy.  If it chooses to inflate, then it inflates.  If it chooses to refrain from inflating, then it refrains.

None of the foregoing is to excuse elected Washington and its deficit financed spending.  But our focus here it the Fed in its role as Washington’s enabler.

Consumer price and wholesale inflation are running hot, well above the Fed own (arbitrary) target of two percent annual inflation.  The Fed has not been able to meet its own target for more than five years, since March 2020.  In fact, as you can see from the following chart of the Personal Consumption Expenditures (PCE) Index, the Fed’s preferred measure of the prices consumers pay for goods and services, price inflation has turned sharply higher. 

If the Fed misses its own target its harebrained solution is to change the target.  As foolish as that sounds it looks like that may happen soon.  It will at least be a de facto admission that their target is, as we have said, arbitrary.  “The assumption is spreading, including right here,” writes Wolf Richter at WolfStreet.com, “that the Fed’s de-facto target has been tacitly moved to the 3-4% range, and 2% is just copy-and-paste lip service.”

Does money supply management confirm that the Fed is throwing in the towel on monetary restraint, and hence lower inflation?  Are the Fed’s printing presses already rumbling along?

Here is the answer in a single chart. It is a graph of the U.S. money supply, M2.  It is a measure of cash like liquidity including physical cash, checking and savings deposits, and easily accessible near-money assets like retail money market funds.

M2 has turned higher, sharply higher.  In the last year M2 has increased 9.6 percent. That is serious monetary growth.

No one should be surprised that the Fed has popped the clutch on the money printing presses.

But at least they can’t print gold!