Surprising US monetary strength

US monetary strength is persisting even as global monetary momentum weakens, implying cooling growth rather than a major downturn and a need for tighter Fed policy.

• Global six-month real narrow money momentum eased again in September, but less than expected because the US component rebounded to a new high.
• The global decline from a February peak points to weaker economic momentum in late 2026 and early 2027, while faster contractions in Japan and the Eurozone and a slowdown in the E7 drove the September deterioration.
• US M2+ grew at a 7.5% annualised rate in the six months to September, compared with 0.8% growth in Japanese M3 and 3.0% in Eurozone non-financial M3.
• The widening US-versus-rest-of-G7 monetary gap indicates relative US economic strength, with the Fed behind the curve while the ECB and Bank of Japan are already considered overrestrictive.
• The house's Fed model puts the probability of another rate hike at 86%, while the ECB's Q4 bank lending survey showed weaker credit demand across loan categories, especially housing; French expected housing-credit demand reached a record low.

Takeaway: The authors expect a softer global economy but not significant weakness, and their monetary indicators argue for further Fed tightening while European and Japanese policy may already be too restrictive.