Definition
M2 is the Federal Reserve’s broad measure of the US money supply: the money that households and businesses hold and can spend quickly. It includes everything in M1 – currency in circulation and checking deposits – plus savings deposits, money-market deposit accounts, small time deposits (CDs under $100,000) and balances in retail money-market funds. It excludes stocks, bonds, larger CDs and money held by banks and the government.
How it works
The Federal Reserve compiles M2 from bank reports and publishes it monthly, in dollars, seasonally adjusted. Money is created mostly when banks make loans (the loan is credited to a deposit), and when the government spends or the Fed buys securities from the public. It shrinks when loans are repaid, when the Fed lets its securities run off, or when people move savings into Treasury bills and other assets outside M2.
Because M2 grows with the economy, the useful number is usually its 12-month growth rate, shown in the table below next to the level.
Example
In February 2020 M2 was about $15.5 trillion. Twelve months later it was about $19.6 trillion: stimulus checks, enhanced unemployment benefits and business loans were deposited into bank accounts, and the Fed bought trillions in bonds. Growth of about 27% in a year was the fastest since the series began in 1959. Then, in 2023, as the Fed shrank its balance sheet and savers moved cash into higher-yielding Treasury bills, M2 fell below its year-earlier level for the first time in the series’ history.
M2 in history
Readings at turning points, taken from the same data as the chart above.
| Date | M2 | 12-month growth | What was happening |
|---|---|---|---|
| Jan 1980 | $1.48T | +8.1% | Era of double-digit inflation and fast money growth. |
| Jan 2000 | $4.67T | +6.0% | Dot-com boom. |
| Jan 2008 | $7.51T | +5.6% | Start of the Great Recession. |
| Feb 2020 | $15.49T | +6.8% | Just before the pandemic. |
| Feb 2021 | $19.64T | +26.8% | Fastest 12-month growth on record. |
| Mar 2022 | $21.77T | +9.5% | M2 peaks for this cycle as the Fed starts raising rates. |
| Apr 2023 | $20.74T | −4.7% | Falling: M2 below its year-earlier level from December 2022 to February 2024, the first declines since the series began. |
| Sep 2026 | $23.41T | +5.7% | Latest reading. |
Monthly values. Explore every month on the M2 Money Supply chart.
Common mistakes
- “More money always means more inflation.” The link exists over long periods but is loose in the short run. M2 grew rapidly after 2008 without high inflation, because the money was mostly held rather than spent.
- “The Fed prints the money in M2.” The Fed creates bank reserves and currency. Most of M2 is bank deposits, created when banks lend and when the government spends.
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M2: questions and answers
What happened to M1 in May 2020?
The Fed reclassified savings deposits as part of M1, so M1 jumped by about $11 trillion overnight. M2 was not affected, which is one reason analysts now focus on M2.
How often is M2 published?
Monthly, by the Federal Reserve Board, about four weeks after the end of the month.