M2 Money Supply
M2 is the Federal Reserve's broadest measure of the U.S. money supply, including cash, checking deposits, savings accounts, money market funds, and small-denomination CDs. It's closely watched by economists because rapid M2 growth often precedes inflation. M2 expanded by $6 trillion (40%) during the COVID pandemic, which many economists believe was a primary driver of the subsequent inflation surge.
M2 Money Supply
$22.7T
Federal Reserve
M2 peaked at approximately $21.7 trillion in April 2022 and has since contracted — the first sustained M2 decline since the Great Depression. This contraction reflects both the Fed's quantitative tightening (QT) program and a decline in bank deposits as higher yields attracted money into money market funds and Treasuries. Historically, sustained M2 growth above 10% year-over-year has reliably preceded inflationary periods.
? Frequently Asked Questions
What is M2 money supply?
M2 includes all of M1 (cash and checking deposits) plus savings deposits, money market deposit accounts, and small-denomination time deposits. It's the broadest commonly-used measure of the money supply.
Why did M2 grow so fast during COVID?
The Federal Reserve purchased $4+ trillion in securities (QE), creating new bank reserves. Simultaneously, the Treasury issued $5+ trillion in stimulus payments directly to households, which flowed into bank deposits — massively expanding M2.
Does money supply growth cause inflation?
The quantity theory of money suggests yes — more money chasing the same goods leads to higher prices. The COVID experience reinforced this: M2 grew 40% in two years, followed by peak CPI inflation of 9.1%.
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