New Federal Reserve Chairman Kevin Warsh loves to talk about the supply of money in the economy and its effects on inflation. He won't like what the fresh data on it has to say.

The money supply hit $23.22 trillion in July, rising 5.41% from a year earlier. It is fastest the money supply has grown since mid-2022, and could make it harder for the Fed to bring down annual inflation to its 2% target.

Money supply, as measured by the M2 indicator, consists of the most liquid forms of money like cash, money in bank accounts and balances in money-market mutual funds among other items.

Money in the system has been continually growing, with the increase over the last six months totaling $804.6 billion, the largest six-month increase since February 2022, the Dow Jones Market data team said. In May, the monthly increase was the largest in five years.

Economists like the late Milton Friedman-the founder of the economic school of monetarism-maintain that a rapidly growing money supply contributes to higher inflation. Warsh studied under Friedman, and shares many of his views.

Prices have been above the Fed's 2% target for the past five years, rising dramatically in 2021 as consumers came out of the pandemic lockdown and spent heavily, undeterred by the higher prices triggered by supply-chain disruptions.

Warsh has put the M2 money supply indicator under a spotlight. In a congressional hearing on July 15, Warsh said that if the Fed had paid attention to money supply after the pandemic, it would have realized that inflation was going to climb. Before that, in a July 10 monetary policy report, he added almost a page about M2 and monetary aggregate.

M2 wasn't part of the policy report before Warsh. Former Fed Chair Jerome Powell five years ago told Congress that M2 "doesn't really have important implications for the economic outlook."

"The classic relationship no longer holds...It's something we have to unlearn," Powell said.

In a direct rebuke of that, Warsh in his testimony last month said, "My view is that a modern central banker should have a mosaic of information, and should not be allergic to any data that happens to be inconsistent with dogma that he or she might have been taught in Econ 101,"

The rise in M2 could in part be due to the growth in bank lending. Every time a bank makes a loan, it creates money because it credits the borrower's account with the money.

The climbing M2 money supply isn't a solitary indicator. Soaring equity prices and money-market fund assets all send the same message: The financial system is awash with money, and that is helping asset prices climb.

Of course, M2 signals nothing about wealth distribution or that younger people are disproportionately dependent on wages and their "purchasing power has been eroded by inflation, while baby boomers hold much of the country's accumulated wealth," Brij Khurana, a fixed-income portfolio manager at Wellington Management wrote in an Op-ed on Monday.

Still, the growing money supply highlights that there's enough liquidity sloshing around for consumers to continue spending and financial markets to remain bubbly for a while more.