M2 (Money Supply)

M2 is a Federal Reserve measurement of the U.S. liquid money supply. It estimates assets that are readily convertible to cash and commonly used for transactions or near-term savings, giving policymakers and economists a picture of money available in the economy.

What M2 Includes

M2 is broader than M1 and combines highly liquid assets that can quickly be used for spending or converted to cash:
* Currency in circulation and demand deposits (M1)
* Savings deposits
* Small-denomination time deposits (CDs under $100,000)
* Retail money market funds and other short-term saving vehicles

Small time deposits are those with terms longer than seven days and balances under $100,000 at depository institutions.

How M2 Is Measured

The Federal Reserve publishes M1 and M2 weekly. These aggregates (M0, M1, M2, historically M3) are used to track money circulating in the economy, from narrow to broad definitions. M2 is often preferred by economists because it captures transfers between account types (for example, moving funds from a money market account to a checking account increases M1 but leaves M2 unchanged).

The Fed releases the M1 and M2 statistics weekly, typically on Thursdays at 4:30 p.m.

M2 and Monetary Policy

M2 is a key input for understanding inflationary pressures and the effectiveness of monetary policy. The Fed’s dual mandate—price stability and maximum sustainable employment—can be influenced by changes in the money supply. When M2 grows rapidly, there may be more spending pressure in the economy, which can contribute to higher inflation; conversely, tightening money supply can slow inflation.

M2 movements have historically coincided with periods of expansionary policy (when the Fed increases liquidity during economic weakness) and contractionary policy (when it restrains liquidity to combat inflation).

Historical Context

Examples of M2 trends:
* January 2000: about $4.7 trillion
* February–June 2020: a rapid increase from roughly $15.3 trillion to $18 trillion during pandemic-related policy responses
* March 2025: over $22 trillion

These figures illustrate how M2 can expand quickly in response to major economic events and policy actions.

Effects of Changes in M2

• Increase in M2: More liquid funds are available, which can boost spending and investment — potentially raising inflation.
• Decrease in M2: Less liquidity can dampen spending and reduce inflationary pressure.
  Policymakers monitor M2 alongside other indicators (inflation rates, employment, credit conditions) when deciding interest-rate and liquidity policies.

The Bottom Line

M2 aggregates liquid and near-liquid assets to measure the money available for spending in the economy. It is a practical tool for economists and the Federal Reserve to assess inflationary trends and the effects of monetary policy. Regular weekly releases allow timely monitoring of shifts in liquidity that influence interest rates, consumer behavior, and the broader economy.

Key Takeaways

• M2 includes M1 plus savings deposits, small CDs, and retail money market funds.
• It is released weekly by the Federal Reserve and is used to gauge liquidity and inflationary pressure.
• Rapid changes in M2 often reflect significant policy actions or economic shocks and influence monetary policy decisions.