Fed Rekindles Interest in Money Supply Metrics Amid Inflation Worries

The Federal Reserve has begun to pay more attention to money supply measures, which may help officials better identify longer-term inflation trends. M2, a measure of currency, bank deposits, and small-sized time deposits, has been included in the Fed's latest Monetary Policy Report after being absent for over a decade.

Kevin Warsh, the Fed's new leader, emphasized that money supply is just one part of policymakers' mix of data to watch. He noted that if more attention had been paid to M2 during the pandemic, officials might have done better in spotting high inflation.

The return to monitoring money supply has its skeptics, with some analysts arguing that traditional monetary aggregates are no longer reliable predictors of inflation trends.