I have pondered this matter further, and have upon reflection abandoned my previous concern with the high M2 figures. Here is one excerpt from my latest Bloomberg column:
To understand forthcoming inflation rates further, consider why monetary aggregates such as M2 have been rising so rapidly. It is not that the U.S. Federal Reserve wishes to relive the experience of the 1970s. It’s that many businesses have been borrowing while they can, fearing they may end up strapped for cash as the pandemic continues.
From that point onward, there are two possible paths. The first is that businesses will actually need that extra cash, due to low consumer demand and a stalled recovery. In that case, the potentially inflationary boost from a higher money supply would be offset by lower demand elsewhere in the economy. The velocity of money would be weak, and there would be no reason to expect major inflationary pressures.
The second possible path is that the recovery will proceed at a rapid clip, and businesses will have extra cash on their hands for a while. That likely would translate into lower borrowing for the rest of the year and a smoothing of monetary flows — and no major increase in inflationary pressures.
There will, however, be some areas of the economy in which inflation will likely be high. Consider a sector in which demand is largely seasonal and has been stifled by the pandemic, and supply in the short run is inelastic. One obvious example is summer vacation travel.
You also might say that I am agreeing with the market forecasts embedded in interest rates, indexed securities prices, and so on.