Where the Money Supply Goes, Inflation will Follow

The likelihood of stable or falling inflation and interest rates in 2023 and 2024 increases as the money supply shrinks. This bodes well for bonds and lower mortgage rates. It will also be good for stocks until the fear of lower profits overtakes the hope for lower interest rates.

Central bankers manage the money supply (M2) with interest rates. It takes 12 to 18 months for changes in interest rates to show up in the economic statistics. We are just approaching the anniversary of the first-rate hikes in March of 2022, and the change in M2 is already negative.