How Monetarism Made a Comeback in 2024

By VirentaNews Staff — May 24, 2026

In 2024, the velocity of money in the United States rose to its highest level in over a decade, coinciding with inflation that stubbornly remains above 5%—a stark departure from central bank forecasts made just two years prior. This unexpected persistence has forced economists and policymakers to re-examine long-dismissed theories, chief among them monetarism, the school of thought championed by Milton Friedman in the 1970s. Once relegated to academic footnotes, monetarism is now gaining traction in elite policy circles, with Stanford economist and former Federal Reserve governor Kevin Warsh emerging as its most articulate modern advocate. In a widely circulated essay titled “The Return of Monetary Disorder,” Warsh argues that the Federal Reserve’s singular focus on interest rates, while neglecting broad money supply indicators, has contributed to macroeconomic instability and eroded public trust in inflation targeting.

The Intellectual Revival of Monetarism

Monetarism, which holds that inflation is always and everywhere a monetary phenomenon, had largely fallen out of favor after the 2008 financial crisis, when central banks turned to unconventional tools like quantitative easing. Yet as post-pandemic stimulus flooded economies with liquidity and inflation surged globally, critics began questioning the adequacy of models that ignored money growth. Warsh, who served on the Federal Reserve Board from 2006 to 2011, has been at the forefront of this reevaluation. His recent writings, published through Stanford’s Hoover Institution, argue that the Fed’s pivot to forward guidance and asset purchases led to a dangerous disconnect between monetary aggregates and policy decisions. With M2 expanding by over 40% between 2020 and 2022—the largest two-year increase in modern history—Warsh contends that ignoring such signals was a policy failure rooted in theoretical complacency.

Warsh’s Critique and the Fed’s Blind Spot

At the heart of Warsh’s argument is the claim that the Federal Reserve abandoned its responsibility to monitor money supply in favor of a narrow focus on employment and inflation metrics. In his view, this shift allowed excessive liquidity to build up in the financial system, ultimately fueling asset bubbles and consumer price increases. He points to the Fed’s 2020 shift to average inflation targeting as a turning point, where the central bank committed to allowing inflation to run above 2% to compensate for past shortfalls—without adjusting for the unprecedented expansion of the monetary base. Warsh warns that this approach treated symptoms rather than causes, much like treating a fever without diagnosing the underlying infection. His essay cites data from the Federal Reserve’s own H.6 release on money stock measures, showing that M2 growth peaked at 27% year-over-year in early 2021, a level unseen since the 1970s.

Policy Implications and Data Reassessment

The resurgence of monetarist thinking has already begun to influence policy debates. At the 2024 Jackson Hole Symposium, several central bankers, including ECB Vice President Luis de Guindos, referenced money supply trends in their speeches—an unusual emphasis in recent years. Economists at the Bank for International Settlements have also published working papers revisiting the relationship between money growth and inflation, noting that cross-country data show a stronger correlation post-2020 than at any time since the 1980s. Critics of modern monetary theory and aggressive fiscal expansion are now citing Warsh’s analysis to argue for tighter control of monetary aggregates. However, the challenge remains operational: central banks no longer target money supply directly, as financial innovation has blurred the lines between different monetary aggregates. Yet Warsh insists that even if precise targeting is impractical, ignoring broad trends is a dereliction of duty.

Who Stands to Gain or Lose?

If monetarism regains influence, the implications extend beyond central banking doctrine. Financial markets may face greater volatility as investors recalibrate expectations around liquidity conditions, not just interest rate decisions. Bond yields could become more sensitive to money supply reports, and equity valuations—particularly in sectors reliant on cheap capital—may come under renewed pressure. For households, a stricter monetary regime could mean higher borrowing costs and slower wage growth, but also greater price stability over time. Developing economies, which often import inflation through capital flows and exchange rates, might benefit from a more disciplined global monetary environment. However, there’s a risk: overcorrection could trigger unnecessary recessions if central banks misread the transmission mechanisms in today’s complex financial system.

Expert Perspectives

Not all economists agree with Warsh’s diagnosis. Nobel laureate Paul Krugman, writing in The New York Times, dismissed the monetarist revival as “a nostalgic regression,” arguing that velocity instability and financial innovation have rendered traditional money supply metrics obsolete. In contrast, Harvard economist Kenneth Rogoff has expressed sympathy for Warsh’s concerns, noting that the link between money growth and inflation appears stronger in high-inflation regimes. “When inflation exceeds 5%, old rules start to matter again,” Rogoff stated in a 2024 Foreign Affairs piece. The debate underscores a broader divide: whether central banks should return to rules-based frameworks or continue relying on discretionary, data-dependent approaches.

Looking ahead, the key question is not whether central banks will formally adopt monetarist targets—they likely won’t—but whether they will integrate money supply analysis back into their forecasting models. Warsh’s influence lies less in prescribing rigid rules than in reviving a mindset of monetary discipline. As inflation expectations remain unanchored and political pressure mounts on central banks, the ideas of Friedman and his modern interpreters may shape the next era of economic policy. The return of monetarism isn’t a full reversal, but a cautionary recalibration—one that could define macroeconomic stability for years to come.

Source: Barrons