Running Out of Money?

Monetarists seem to be making a comeback, and they are sounding the alarm that the recent weakness in the M2 measure of money is confirming that monetary policy already is tight enough to cause a recession. We’ve addressed this issue in the past, and we still aren’t alarmed.

M2 peaked at a record high during March 2022. It is down 1.8% since then through November. We estimate that it is still about $2.0 trillion above its pre-pandemic trendline (chart).