Money Returns to Fed Dashboard with Limited Impact

The Federal Reserve's dashboard has seen a return of 'money' as an indicator, but its impact on policy is unlikely to be significant. According to Pantheon Macroeconomics, money growth has normalized after the pandemic-era surge, with M2 and M4 Divisia growth rates returning to pre-pandemic levels.

The economists at Pantheon stated that current money growth provides 'little reason to worry about economic overheating.' They also noted that persistent inflation is difficult to attribute to excessively rapid money growth. With most measures of money velocity having returned to pre-pandemic levels, there is no remaining overhang of 'excess money' from the pandemic.

Pantheon expects the Fed to ease monetary policy next year after a possible further tightening this year. The pivot would be driven by more encouraging inflation data and weakening labor-market conditions rather than monetary indicators. However, Pantheon notes that money is likely to earn a place among indicators the Federal Open Market Committee watches closely.