Money Supply and Race Horses

With the Kentucky Derby this weekend, we compare the economy's performance to a horse race. Specifically, we take a look at the U.S. money supply (M2), its increase over the last few years, and the potential for continued above-average inflation.

The central bank has been pulling money out of the economy to help slow inflation. While the year-over-year money supply has declined from the March 2022 peak, the total money supply remains historically high.

We're not betting it all on horses Tapit Trice or Forte to win the derby; rather, we're looking at prior runs of high inflation and the types of assets that have generally done well in those environments. For example, assets that are more finite in supply, such as stocks, commodities, and gold, have fared well during periods of elevated inflation.

As long-term investors, we recognize that where we are today is not where we will always be. What works for this Run for the Roses may not be the right mix for the Preakness Stakes. At Vector, we continue to advocate for owning a diverse mix of assets and preparing for a variety of outcomes.

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