September 2025 Commentary And Economic Outlook

2025-09-17 02:00:00 ET

Economy

• The monetary base is the critical leading indicator of inflation and GDP growth. M1 and M2 have become outdated indicators after the GFC as banks now have massive excess reserves, so the Fed can no longer control the size of bank balance sheets to restrict credit. In addition, non-bank lending has grown exponentially, further limiting the importance of M1 and M2 relatively to the monetary base.

  • The monetary base is flat Y/Y vs. a normal growth rate of 5% which is deflationary and could lead to a recession.

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