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Opinion
Karl W. Smith

The Case for the Federal Reserve to Pause Right Now

Growth in the money supply has contracted for the first time since at least before 1960, which should drag inflation even lower in coming months.

Federal Reserve Chair Jerome Powell can stop raising interest rates.

Federal Reserve Chair Jerome Powell can stop raising interest rates.

Photographer: Claudio Bresciani/AFP via Getty Images

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If you believe in the Milton Friedman adage that inflation is always and everywhere a monetary phenomenon, then you should also believe that the Federal Reserve can stop increasing interest rates. Now.

Raising its target rate rapidly from near zero early last year to 4.50% in December made sense not just with core inflation surging above 6%, but also with the money supply measured by M2 soaring by almost $6 trillion, or some 41%, as the government flooded the economy with cash to support consumers and businesses during the pandemic.