John Lynch, Comerica Wealth Management's Chief Investment Officer, says there has been a growth in the money supply. He says the Fed has measured money supply by M2 that surged to a peak of 25% Y/Y in the summer of 21.
Comerica Wealth Management is a part of Comerica Incorporated CMA.
Lynch added that there is a very strong correlation between core CPI and a one-year lag. "So we have peaked in M2 summer of 21 and 25% year over year pace. Currently, M2 is only growing in a 5 or 6% pace of growth in the summer of 22. So it stands to reason that we could see a pretty good decline in inflation purely from the money supply," Lynch said.
In a weekly update, Lynch said that the global economy and financial markets continue to face various challenges.
The report mainly looked at the situations in the Developed and Emerging markets, namely China, Japan, and Europe:
China: Covid-related lockdowns have weighed on domestic output, and weak global demand has, until recently, pressured export growth. GDP forecasts have steadily declined this year.
Japan: The central bank adheres to accommodative policies despite the weakening yen, hovering near a 25-year low. Persistent currency weakness will likely see inflation growth above expected, potentially resulting in a late policy response in 2023.
Europe: Economic growth is weakening, but inflation is at forty year high. Market signals express their displeasure.
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