I was wrong about the Fed and its rate policy this year, but not simply because M2 is rising. Over the past year, M2 money supply has shifted from a modest recovery into sustained expansion, rising $1.26 trillion, or 5.7%, from September 2025 to September 2026. More importantly, the pace is accelerating. Over the past six months, M2 has been growing at roughly a 7.2% annualized rate, well above the three-year average of 4.1%. But M2 growth by itself isn’t sufficient reason for the Fed to raise rates. Money can sit idle, velocity can change and deposit growth does not necessarily translate into excess demand. The more important signal is what is happening alongside it: accelerating credit creation, record corporate issuance, enormous AI-related capital spending, resilient growth and renewed inflationary pressures. Investment-grade issuance has already set a full-year record, fuelled in part by enormous AI-related borrowing, while technology CapEx is making an outsized contribution to economic growth. Companies are raising and spending hundreds of billions on data centres, power, chips and infrastructure. Then there’s inflation. Energy has become a major near-term driver of producer and headline inflation. PPI for final demand surged 6.3% year over year in September, while core CPI remains at 2.6%. The challenge for the Fed is that monetary policy can restrain demand, but it can’t produce more energy. That side of the inflation equation increasingly rests with the White House and energy policy. When money and credit are expanding at the same time that capital spending is booming and inflationary pressures are re-emerging, the combination becomes much harder to dismiss. Meanwhile, markets are behaving as though none of this matters. Equity returns remain heavily concentrated in technology and AI-linked names, while parts of the commodity complex, including wheat, lumber, and gold, silver and uranium equities, are being sold despite what in many cases appear to be supportive underlying fundamentals. Put it all together and the backdrop looks considerably less benign than I previously thought. M2 isn’t the reason to tighten. It’s the combination of expanding money, booming credit creation, massive AI-related capital spending, resilient growth and renewed inflationary pressure that changes the calculus. And yet technology stocks are behaving as though higher rates pose virtually no threat. Perhaps that’s precisely the opportunity for the Fed to turn more hawkish. When markets stop fearing the hawks, it becomes much easier for the hawks to start eating the doves.