M1

M1 is the narrowest measure of a country’s money supply, consisting of the most liquid forms of money used as a medium of exchange. It reflects cash and deposits that can be spent immediately.

Key takeaways
* M1 includes currency, demand deposits, and other highly liquid deposits (since May 2020 this definition was expanded to include certain savings deposits).
* M1 excludes less liquid financial assets such as bonds.
* The Federal Reserve and commercial banks influence M1 through monetary operations and lending; the Federal Reserve Bank of St. Louis publishes monthly M1 data.
* M1 historically showed links to inflation and GDP, but its usefulness as a sole policy guide has diminished.

What M1 includes
* Currency (Federal Reserve notes and coins) in circulation outside central bank vaults and depository institution vaults.
* Demand deposits and other checkable deposits (checking accounts, NOW accounts, credit union share draft accounts).
* Traveler’s checks issued by non-bank issuers.
* Since May 2020, some other liquid deposits (including certain savings deposits) have been classified with M1, which raised reported M1 levels.

How M1 is calculated
M1 = currency in circulation (outside the Fed and banks) + demand deposits + other checkable deposits + traveler’s checks + qualifying liquid deposits.

Definitions to compare
* M0 (monetary base): the central-bank level of money, including currency in circulation plus reserve balances held by banks at the central bank.
* M2: M1 plus “near money” such as savings deposits, small time deposits and retail money market funds.
* M3 (discontinued by the U.S. Fed in 2006): included M2 plus larger time deposits and institutional money market funds.
* MZM (Money Zero Maturity): M1 plus all money market funds; intended to measure money redeemable at par on demand.

How M1 changes
* Central bank actions — issuing currency, open-market operations (buying/selling securities), and lending to banks — directly affect M1.
* Fiscal policies and government transfers (e.g., stimulus payments) increase bank deposits and thus M1.
* Household and business behavior — more spending or transfers from less-liquid accounts into checkable accounts — expands M1.
* Policy responses to crises (for example, the COVID‑19 period) and the May 2020 definitional change both contributed to large reported increases in M1.

M1 and the economy
* Mechanism: increasing M1 tends to make liquidity more available, lowering borrowing costs and boosting spending; higher demand can put upward pressure on prices.
* Historical context: money-supply measures once showed clearer correlations with GDP and inflation. Over recent decades these relationships have been less stable, so central banks use a broader set of indicators when setting policy.

Why M2 is more stable than M1
M2 includes less-liquid instruments (savings deposits, time deposits, retail money market funds) that change more slowly than the components of M1, so its aggregate tends to show less short-term volatility.

Who oversees M1
In the United States, the Federal Reserve system sets monetary policy that influences M1. The Federal Reserve Bank of St. Louis provides regular published data on money aggregates.

Bottom line
M1 measures the most liquid money used for transactions: cash and immediately spendable deposits. It is a useful indicator of transactional liquidity in the economy, but because of definitional changes and weaker correlations with macroeconomic variables, it is only one of several tools policymakers and analysts use to assess economic conditions.