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.
19:40
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Quick takeaways
- Increased economic policy uncertainty leads individuals to hold more cash, reducing money velocity and potentially dampening inflationary pressures.
- The recent decline in money velocity, while notable, should not be seen as a long-term trend; variations are influenced by numerous economic factors.
Deep dives
Impact of Economic Policy Uncertainty on Velocity
Recent changes in economic policy have led to increased uncertainty, which affects money velocity. When individuals perceive more unpredictability in the economic landscape, they tend to hold higher cash balances as a precaution, thereby reducing the frequency with which money changes hands. This dynamic often arises not just during recessions but also during significant policy shifts, influencing people's demand for cash. In the current context, the U.S. Economic Policy Uncertainty Index has spiked notably, surpassing levels seen during previous crises, indicating heightened caution among the populace.
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