Mid-Year Economic Review & Outlook

Disinflation has already been achieved & the economic warning signs are mounting

Fed tightening is having an enormous impact on the money supply & bank credit

An analysis of the changes that have occurred in monetary and credit aggregates show that the Fed’s tightening is having an enormous impact.

On an annual average basis, the M2 money supply is falling at the fastest pace since the Great Depression and bank credit is on the verge of turning YoY negative. This comes as commercial bank security holdings see their largest decline on record and as weekly loan & lease growth has fallen from a YoY high of 12.5% in December 2022 to 5.2% as of 19 July — recent trends point to further material falls in YoY growth.

CPI expected to be range bound, core CPI forecast to keep dropping in 2H23

In my latest update to my medium-term US CPI forecasts, I currently estimate that the CPI will remain range bound between 3.1%-3.6% in 2H23. For the core CPI, I currently expect an ongoing deceleration throughout 2H23, reaching 3.6% YoY in December.

Disinflation has already been achieved, b…