Data: St. Louis Fed; Chart: Axios Visuals

The combination of the Fed's seemingly limitless monetary policy and the open floodgates fiscal response from the White House and Congress has investors worrying about inflation again.

Why it matters: Inflation not only increases the cost of goods and services, but it could force the Fed to raise interest rates before the economy has recovered, depressing growth as the U.S. starts to emerge from the coronavirus-induced recession.

  • The pandemic is currently choking off growth and inflation, but once nationwide lockdown orders are removed, the unprecedented action could spark inflation levels not seen in a generation.

Flashback: Many feared inflation would flare up when the Fed unveiled quantitative easing to battle the global financial crisis in 2008, and it never happened.

  • That may have provided policymakers a bit of false confidence, warns David Kelly, chief global strategist at JPMorgan Asset Management, and could "give us another opportunity to ignite the inflation bomb."

Reality check: Following the 2008 recession, the U.S. money supply stayed muted as banks hoarded capital and refused loans to riskier borrowers despite piles of money from the Fed.

  • Then the Dodd-Frank Act passed, increasing bank capital requirements.
  • That was followed by spiking income inequality and Congress enacting various fiscal austerity measures.
  • Those all "acted as a brake on the demand for goods and services and diverted income towards the purchase of financial assets," Kelly says in a note to clients.

The intrigue: That was the exception, writes Michael Ashton, research director and portfolio manager at Real Asset Strategies. This recession follows the rule.

  • There is no current banking crisis, so the Fed’s "massive balance sheet expansion, coupled with a relaxing of capital rules (e.g. see here, here and here), has immediately produced a huge spike in transactional money growth," he says.
  • "M2 has grown at a 88% annualized rate over the last month, 34% annualized over the last 13 weeks, and 14.8% annualized over the last 52 weeks."

What it means: M2 is a measure of the U.S. money supply that includes cash, checking deposits, savings deposits, money market securities, mutual funds and things like certificates of deposit.

  • It is a closely watched inflation indicator.

Why you'll hear about this again: The year-over-year M2 growth rate through April 13 is 10 times what it was at this stage in both 2018 and 2019, according to an Axios analysis of Fed data. It's also higher than it ever reached during the financial crisis.

  • Ashton finds that the growth in the money supply has broken the record from 1976. "And they're just getting started."

Go deeper

Updated Oct 7, 2020 - Health

World coronavirus updates

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Data: The Center for Systems Science and Engineering at Johns Hopkins; Map: Axios Visuals

New Zealand now has active no coronavirus cases in the community after the final six people linked to the Auckland cluster recovered, the country's Health Ministry confirmed in an email Wednesday.

The big picture: The country's second outbreak won't officially be declared closed until there have been "no new cases for two incubation periods," the ministry said. Auckland will join the rest of NZ in enjoying no domestic restrictions from late Wednesday, Prime Minister Jacinda Ardern said, declaring that NZ had "beat the virus again."

GOP senator says stimulus needs to be as "narrowly focused" on COVID-19 as possible

Sen. James Lankford (R-Okla.) said at an Axios virtual event Wednesday that the next coronavirus relief package needs to be as "narrowly focused" on COVID-specific issues as possible in order to resolve the differences between Republicans and Democrats.

Why it matters: Democrats and negotiators from the Trump administration remain far apart on a deal for the next tranche of relief. The fraught negotiations come as millions of Americans continue to suffer from the health and economic effects of the pandemic without the unemployment benefits from the first stimulus bill.

Fauci: Coronavirus task force to examine aerosolized spread


A sneeze. Photo: Maartje van Caspel/Getty Images

The White House coronavirus task force will examine more closely just how much SARS-CoV-2 might be transmitted via aerosols, and not just from droplets, NIAID director Anthony Fauci said Wednesday at an online forum sponsored by Harvard T.H. Chan School of Public Health.

Why it matters: The longer the coronavirus can remain infectious in the air, the more likely it can infect people, particularly indoors — leading to the possible need to alter air filtration and circulation within buildings.