Cents and Sensibility: the Inflation Guy Podcast Ep. 132: Crazy is Anti-Inflationary
Feb 5, 2025
Explore the curious dynamics of money velocity and its subtle impact on inflation, as trends show a slight decline that might surprisingly cool inflation rates. Delve into how economic uncertainty shapes cash demand, particularly with recent policy shifts in the U.S. This discussion highlights the complex interplay between interest rates and inflation, shedding light on the broader implications of these economic fluctuations. Uncover the unexpected factors that could influence financial stability in turbulent times.
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Money Velocity Inflection Point
- M2 money velocity declined slightly in Q4 2024 for the first time in several quarters.
- This potential inflection point signals a rebalancing between money growth and inflation.
Velocity and Cash Demand
- Velocity is the inverse of real cash balance demand.
- Higher interest rates on cash balances decrease demand and thus increase velocity.
Uncertainty and Velocity
- Uncertainty increases precautionary cash demand, lowering velocity.
- This effect is amplified during recessions but also matters in times of significant policy change.