The CPI is likely going to remain stubbornly high
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 November 2023 (28 straight months). The latest month (February) showed a massive increase of $198B. This is more than double the recent trend which is quite alarming. What has caused this sudden increase in Money Supply? It likely has many drivers, but the fact the Fed has restarted QE could be a major reason.
Figure 1: MoM M2 Change (Seasonally Adjusted)
The increase in February was 11.1% annualized, which is well above the 4.9% over the past year.
Billions of $ | Annualized Growth Rate Since: | ||||||
|---|---|---|---|---|---|---|---|
Fed Variable | Feb 2026 | Jan 2026 | MoM Difference | 1 Month | 6 Month | 1 year | 3 year |
M2 Monthly Money Supply | 22,667.3 | 22,469.1 | 198.2 | 11.1% | 5.3% | 4.9% | 2.2% |
February average is typically around 6%, which puts the latest month still well above average.
Figure 2: Average Monthly Growth Rates
Non-seasonally adjusted shows negative growth for the month of January and positive growth for February and March (note: this data is ahead of the seasonally adjusted data above).
Figure 3: MoM M2 Change (Non-Seasonally Adjusted)
The weekly data shows what happened: the recent data has been moving with more consistency rather than exhibiting a more choppy behavior as it did for most of the past.
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 has been relatively flat for several weeks now around the 6% range.
Weeks | |||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20 |
6.35 | 6.39 | 6.37 | 6.3 | 6.19 | 6.23 | 6.12 | 6.12 | 5.83 | 5.47 | 4.8 | 4.33 | 4.2 | 4.16 | 4.0 | 3.98 | 4.11 | 4.24 | 4.33 | 4.29 |
21 | 22 | 23 | 24 | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32 | 33 | 34 | 35 | 36 | 37 | 38 | 39 | 40 |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
4.01 | 3.63 | 3.37 | 3.26 | 3.02 | 2.8 | 2.68 | 2.65 | 2.51 | 2.41 | 2.34 | 2.29 | 2.36 | 2.65 | 3.3 | 3.8 | 4.12 | 4.34 | 4.6 | 4.64 |
41 | 42 | 43 | 44 | 45 | 46 | 47 | 48 | 49 | 50 | 51 | 52 | 53 | 54 | 55 | 56 | 57 | 58 | 59 | 60 |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
4.51 | 4.42 | 4.14 | 3.88 | 3.67 | 3.72 | 3.8 | 3.84 | 3.91 | 4.22 | 4.69 | 4.85 | 5.04 | 5.39 | 5.71 | 6.15 | 6.53 | 6.74 | 6.71 | 6.58 |
The plot below shows how the latest year compares with previous years. Typically, this is the time of year where Money Supply growth starts to dip. However, it seems that this year is remaining much more flat.
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 a ~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.
The inflation rate is now only ~1% below the fed funds rate. Most importantly, the inflation rate is no longer falling like it has been for the last few years. The rate has remained above 2% for 4 years now, proving much sticker than anyone originally forecast. Furthermore, the market is still pricing in a rate cut before a rate hike, all but ensuring the CPI stays elevated.
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. You can see that the Money Supply is rising at the fastest clip since 2021. This is not a good sign if inflation needs to be coming down.
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.
The market has been very choppy since October. Considering the money supply has continued to grow over that time, the compressed range in the stock markets is likely to result with a move higher once we see a breakout of the current range. Obviously, the war has thrown a monkey wrench into things, but if there is any resolution to the war, it could create a market breakout.
Please note the chart only shows market data through Mar 2nd 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 balance now sits close to zero.
Figure 9: Fed Reverse Repurchase Agreements
The CPI remains above 2%. With a war in the Middle East driving up energy prices, and a continued Money Supply expansion, there is a near certainty that the CPI will be trending up in the months ahead and not down. Then the Fed is in a real pickle. Do they reverse course and start raising rates, leave them unchanged, or continue to cut. What if the labor market weakens? The next Fed chair will be a big driver of policy. Will they prioritize price stability or the labor market? Given the massive debt and over-levered economy, it is almost a certainty that rates will not be raised and the easy money spigots will continue flowing. This could be the final end to the dollar.