Due to the instability of money demand, monetary policy implementation in the United States has held
a smaller and smaller role for analysis of money, to the point that the Federal Reserve and therefore
market participants rarely if ever mention it. However, new Fed Chairman Kevin Warsh has clearly
indicated a view that money supply is relevant for monetary policy. Our contention is not that a return
to targeting monetary aggregates is imminent or appropriate, but that monetary aggregates contain
useful information for forecasting growth and inflation and this information should not be discarded, as
it currently is.
Because they generally follow the Fed, financial markets are ill equipped to understand the return of
monetary analysis. We aim to bring them up to speed. We first review monetarism and its rise and
decline at the Fed. Next, we survey the state-of the-art in this unjustly neglected field of
macroeconomics. There is significant evidence that Divisia monetary aggregates outperform simple-
sum aggregates. Finally, we extend the frontier of monetary analysis to current data through an
application of the Greenspan-era P-star model.
Under benchmark assumptions for the supply side, most monetary aggregates indicate monetary
policy is at present approximately neutral in its effect on inflation. In contrast, immediately after the
pandemic, monetary analysis indicated policy was extremely stimulative, suggesting high inflation
would be persistent and that tighter monetary policy was necessary sooner than it arrived. Unlike
immediately after the pandemic, most monetary aggregates do not suggest recent high inflation will
prove persistent, and it may be inappropriate to attribute recent quarters’ high inflation to excessive
money growth. If money growth begins to accelerate from current levels, it would suggest tighter
monetary policy is appropriate.
Read the Full PDF article – https://www.hudsonbaycapital.com/documents/FG/hudsonbay/research/654683_Hudson_Bay_Research_A_Return_to_Monetarism_July_2026.pdf