The Fed is cutting rates into a rising inflation environment. That is not a good recipe for success
This article first appeared on SchiffGold.
Money Supply is a very important indicator. It helps show how tight or loose current monetary conditions are regardless of what the Fed is doing with interest rates. Even if the Fed is tight, if Money Supply is increasing, it has an inflationary effect.
One key metric shown below is the “Wenzel” 13-week annualized money supply figure. It was made popular by the late Robert Wenzel who tracked the metric weekly as an indicator for where the economy might be headed. In 2020, the Fed started reporting the data monthly instead of weekly. It should also be noted that Money Supply data can be heavily revised in future months.
Seasonally Adjusted Money Supply has been growing on a consistent monthly basis since January 2024. The latest month (October) showed another solid increase of $86B. This continues the trend of elevated money supply growth.
Figure 1: MoM M2 Change (Seasonally Adjusted)
The increase was 5.8% annualized, which is below the 4.7% over the past year.
Billions of $ | Annualized Growth Rate Since: | ||||||
|---|---|---|---|---|---|---|---|
Fed Variable | Oct 2025 | Sep 2025 | MoM Difference | 1 Month | 6 Month | 1 year | 3 year |
M2 Monthly Money Supply | 22,298.1 | 22,212.5 | 85.6 | 4.7% | 4.9% | 4.6% | 1.3% |
October average is typically around 5.5%, which puts the latest month a bit below average.
Figure 2: Average Monthly Growth Rates
Non-seasonally adjusted shows positive growth for the month of October and November, with steady growth (note: this data is ahead of the seasonally adjusted data).
Figure 3: MoM M2 Change (Non-Seasonally Adjusted)
The weekly data shows what happened. There was a decent pop in the most recent week of $168B for the week of Nov 3rd. Keep in mind, this is unadjusted which is why it does not match to Figure 1.
Figure 4: WoW M2 Change
The late Robert Wenzel of Economic Policy Journal used a modified calculation to track Money Supply. He used a trailing 13-week average growth rate annualized as defined in his book The Fed Flunks. He specifically used the weekly data that was not seasonally adjusted. His analogy was that in order to know what to wear outside, he wants to know the current weather, not temperatures that have been averaged throughout the year.
The objective of the 13-week average is to smooth some of the choppy data without bringing in too much history that could blind someone from seeing what’s in front of them. The 13-week average growth rate can be seen in the table below.
Growth was accelerating for 13 straight weeks, but has slowed a touch to 5.08% in the most recent week.
Weeks | |||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20 |
5.08 | 5.13 | 5.03 | 4.68 | 4.21 | 3.85 | 3.64 | 3.32 | 3.03 | 2.84 | 2.77 | 2.6 | 2.46 | 2.36 | 2.28 | 2.33 | 2.63 | 3.28 | 3.82 | 4.18 |
21 | 22 | 23 | 24 | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32 | 33 | 34 | 35 | 36 | 37 | 38 | 39 | 40 |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
4.43 | 4.71 | 4.76 | 4.65 | 4.57 | 4.3 | 4.06 | 3.86 | 3.91 | 3.99 | 4.04 | 4.06 | 4.34 | 4.79 | 4.93 | 5.1 | 5.44 | 5.74 | 6.17 | 6.54 |
41 | 42 | 43 | 44 | 45 | 46 | 47 | 48 | 49 | 50 | 51 | 52 | 53 | 54 | 55 | 56 | 57 | 58 | 59 | 60 |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
6.75 | 6.73 | 6.6 | 6.26 | 5.99 | 5.58 | 5.11 | 4.84 | 4.74 | 4.47 | 4.32 | 4.13 | 4.02 | 3.95 | 3.77 | 3.49 | 3.01 | 2.53 | 1.94 | 1.57 |
The plot below shows how this year compares with previous years. This year started at about the average point for the last 10 years and has stayed in that range the entire year. Growth is typically flat to up for the last two months of the year. It appears this year should fit in the same line.
Figure 5: Yearly 13-week Overlay
The chart below shows the history of inflation, Money Supply, and Fed Funds. As shown, in 1970 inflation worked with ~2 year lag compared to Money Supply. Money Supply slowed dramatically in 2023 and 2024 but has been moving back up. Inflation has also been stickier than the Fed would like, but unfortunately, they cannot do much given the large debt load of the US Government and Corporations. Despite inflation staying elevated, even moving up in the recent period, the Fed has no choice but to continue lowering rates.
Figure 6: YoY M2 Change with CPI and Fed Funds
The charts below are designed to put the current trends into historical perspective. The orange bars represent annualized percentage change rather than raw dollar amount.
Figure 7: M2 with Growth Rate
Below shows the 13-week annualized average over history. This chart overlays the log return of the S&P. Mr. Wenzel proposed that large drops in Money Supply could be a sign of stock market pullbacks. His theory, derived from Murray Rothbard, states that when the market experiences a shrinking growth rate of Money Supply (or even negative) it can create liquidity issues in the stock market, leading to a sell off.
While not a perfect predictive tool, many of the dips in Money Supply precede market dips. Specifically, the major dips in 2002 and 2008 from +10% down to 0%. 2022 was highly correlated with a fall in Money Supply and the rebound has corresponded with the big stock market move we saw in 2023 and into 2024. The slowing growth in 2025 did correlate with the market drop in March/April, but that was clearly more headline driven. With money growth continuing to climb, it seems to be providing enough fuel to keep pushing the market higher. The current November market correction looks like it will likely be shallow since the money supply remains elevated
Please note the chart only shows market data through Nov 3rd to align with available M2 data.
Figure 8: 13-week M2 Annualized and S&P 500
One other consideration is the reverse repo market at the Fed. This is a tool that allows financial institutions to swap cash for instruments on the Fed balance sheet.
Reverse Repos peaked at $2.55T on Dec 30, 2022. Money gushed out from March 2023 to May 2024. The outflows have taken another leg down as the remaining balances have been drained. The balance is now at one $1B.
Figure 9: Fed Reverse Repurchase Agreements
The Fed is continuing to cut rates while inflation is moving up. With $38T in debt, they have no choice. To keep the debt load sustainable, rates have to come down. Gold at $4,000 is screaming from the mountain tops that this is not a good idea. Gold does need some time to cool off but there is nothing in the fundamentals that tell you the gold bull market is over. If anything, it is still in the early innings.