Settlement until we really cross the finish line, which could be months and months away, even if something is agreed to in the here and now.
All right. Thanks, Rick. If you don't know, the Fed is set to kick off its two-day policy meeting. You haven't been paying attention because it is. And as a result, Stephen Miran here, he's a former Fed governor, currently senior strategist at Hudson Bay Capital, also former Council of Economic Advisors chair. So, you know, a lot of the thinking of President Trump on a lot of different matters. I hesitate to lead a segment with money supply because it's so arcane. We just want to talk about what Warsh is going to do. Warsh and company will do tomorrow, but I think it's important because it might inform us on what to do. And in the old days, all market players watched the money supply and aggregate money growth in your work, which you're bringing back. I think because Warsh pays attention to it. We're at neutral right now.
Yeah, I think that's the takeaway from our work. First of all, thanks for having me. It's been very clear from Chairman Warsh's statements and writings over the course of decades that he cares about the money supply. And so what I did with my colleagues at Hudson Bay, Nouriel Roubini, and also Peter Ireland, a professor at Boston College, we delved into the literature on this, to look at the state of the academic field on it, and money supply and monetarism more broadly, used to be super influential in the setting of monetary policy. As you said, everyone looked at it every week, every week. And then after a few bad predictions, monetarism really lost a lot of its shine. And eventually it became disused and people stopped looking at the money supply and the Fed stopped monitoring it. What we find in the paper as we survey the literature, is that a lot of the reason why people stopped paying attention to money supply is because they just weren't measuring it correctly. As financial innovation occurs, as new types of money become invented, some of those types of money are more for store of value than for transactions. And so if your goal is to predict transactions, the economy and money supply is growing for store value purposes, like a money market fund, you're going to make bad predictions. So what some of the modern literature that's developed over the last ten, 12 years has done has been to try to measure money supply better by looking at different types of money and how transaction-focused they are versus how store-of-value-focused they are. And when you try and weight them like that, in the same way, when you look at inflation, you weight shelter, you weight housing more highly than you weight video games because people spend more money on housing than they do on video games. When you weight money supply based on how transaction-focused a type of money is, you get much, much better predictions. And that addresses a lot of the problems that money supply has had for usability in monetary policy. When you do it this way, you correctly capture the deflationary pressure after the global financial crisis, which is something that if you remember the endless op-eds and columns that M2 was exploding because of QE, there was going to be hyperinflation that didn't pan out and we still had sustained deflation. Right? Right. You measure money correctly, you get that, right.
And then after the pandemic, you can totally see what happened.
Absolutely. After the pandemic, even the most cursory look at money would have told you, hey, this inflation is going to be big. It's going to be persistent. You better get ahead of it and do something.
There are so many more forms of money to be used as transactions than there used to be, even in 2008. You think about new forms now. How do you keep track of, keep measuring those things? What did you have to do to feel like you really had your hands around it?
Yeah. So fortunately, we didn't actually do the measurement ourselves because there's other researchers out there, other academics who do the measurements we use there. There's a Center for Financial Stability, which does a lot of the measuring of these things. And we use their data that they generously make available. But we reported on the studies and we modernized and updated the studies for today's data. And as Joe said before, what we find when we do this is right now, you know, monetary.
Policy, like post-pandemic.
It's not all, it's not like it at all right now through this lens, monetary policy looks pretty neutral, which tells you that to the extent that we've had higher inflation readings in the last 6 or 9.
Months, persistent might be temporary, actually transitory.
This time it's much more likely to be transitory. It's much more likely to be temporary this time because it's not driven by policy. It's not driven by monetary policy. It's not driven by fiscal policy. And so as a result of that, because that would show up in money also, right? The money supply doesn't care what the origin of the money is, whether the money originates at the Fed or originates from Treasury or internationally. Right. If it were policy driven, it would be showing up in the money supply. And that's not happening. And so this is telling you higher inflation right now is much more likely to be transitory than it was after the pandemic and the orthodox.
