M1 Money Stock
I&#x27;ve weighed in a few times on this but it bears mentioning again. This graph is presented strictly without context. Inflation is a function of both money supply and velocity. The M1 velocity graph is basically the mirror image of the M1 supply graph. [1]<p>US domestic savings rates are near all-time highs. [2]<p>The money supply was expanded in order to offset the drop in velocity from Americans putting their money into savings accounts and into the stock market - risking a deflationary spiral. The Fed has tools available at its disposal to contract the supply should velocity go up in order to meet its goal of a steady 2% rate of inflation. [4] They have admitted it may be transiently higher than 2% as the economy re-opens but their goal is an average of 2%, not to avoid spikes. Spikes historically are normal and common.<p>[edit] A good way to conceptualize this is if the Fed printed a $1T coin and gave it to me, then I threw it into a vault and didn&#x27;t spend it, would that impact the prices in the CPI basket? No, because the supply expanded and the velocity contracted commensurately. This is what&#x27;s happening around America on a smaller scale as COVID spooked folks into saving. More about the relationship between supply and velocity and inflation here. [3]<p>The &quot;inflation scare&quot; people are talking about now isn&#x27;t whether there&#x27;s already secret inflation we&#x27;re not talking about (although it does come up, it&#x27;s more of a fringe idea). Rather, whether the Fed&#x27;s tools to reduce supply are sufficient to offset a big increase in velocity now and moving forward.<p>[1] <a href="https:&#x2F;&#x2F;fred.stlouisfed.org&#x2F;series&#x2F;M1V" rel="nofollow">https:&#x2F;&#x2F;fred.stlouisfed.org&#x2F;series&#x2F;M1V</a><p>[2] <a href="https:&#x2F;&#x2F;fred.stlouisfed.org&#x2F;series&#x2F;PSAVERT" rel="nofollow">https:&#x2F;&#x2F;fred.stlouisfed.org&#x2F;series&#x2F;PSAVERT</a><p>[3] <a href="https:&#x2F;&#x2F;seekingalpha.com&#x2F;article&#x2F;4411210-money-supply-mystery" rel="nofollow">https:&#x2F;&#x2F;seekingalpha.com&#x2F;article&#x2F;4411210-money-supply-myster...</a><p>[4] <a href="https:&#x2F;&#x2F;fred.stlouisfed.org&#x2F;series&#x2F;FPCPITOTLZGUSA" rel="nofollow">https:&#x2F;&#x2F;fred.stlouisfed.org&#x2F;series&#x2F;FPCPITOTLZGUSA</a>