What Is M2 and How Does the M2 Money Supply Measure Liquidity?

What Is M2

M2 is one of the monetary aggregates, the statistics central banks use to measure the money supply. It starts from M1, the narrowest measure of spendable money, and adds balances that can be turned into cash fairly easily but are not normally used for payments. Only money held by the public is counted, not balances held by banks or the federal government.

What M2 Includes

Under the Federal Reserve's definition, M2 is built from:

• currency held outside banks and the Federal Reserve

• demand deposits, such as checking accounts

• other liquid deposits, including savings deposits and money market deposit accounts

• small time deposits under $100,000

• retail money market fund balances

Retirement balances in IRA and Keogh accounts are then subtracted, since they are hard to withdraw early. The first three items form M1. Savings deposits were moved into M1 in May 2020, after the Fed removed the six-transfers-per-month limit on savings accounts in April of that year.

How M2 Measures Liquidity

M2 can be read as a ladder. At the top sit cash and checking balances, ready to spend at once. Below them come savings deposits, and then near money such as small time deposits and retail money market funds, which take a little time or cost to turn into spending power. Longer-term securities, the kind described in this money market vs capital market comparison, are not counted at all. A rising M2 therefore shows that the public holds more money that could be spent or invested quickly.

M1 vs M2

The M1 vs M2 difference is the near money layer. In August 2026, seasonally adjusted M1 stood at about $19.99 trillion and M2 at about $23.34 trillion, according to the Fed's H.6 release of September 22, 2026, so roughly 86% of M2 was M1.

That share was much smaller before 2020. When savings deposits were reclassified in May 2020, M1 jumped from around $5 trillion to about $16 trillion in a single month without any new money being created. This break is why long-run M1 charts are hard to read and why M2 is preferred for comparisons over time.

Where to Find M2 Data

The source is the Federal Reserve's H.6 Money Stock Measures release. It is published monthly, usually on a Tuesday late in the month, with figures for the month before. The same data appear on FRED, the database of the Federal Reserve Bank of St. Louis, under the series M2SL (monthly, seasonally adjusted) and WM2NS (weekly, not seasonally adjusted). Recent months are revised as new reports and seasonal factors come in, so the latest figure is provisional.

How Traders and Economists Use M2

Economists watch the annual growth rate of M2 rather than its level. Fast growth points to abundant liquidity, while a contraction, as in 2023 when M2 was smaller than a year earlier, points to tighter conditions. Traders use the same reading as background for risk assets: strong money growth has often coincided with rising stock and crypto prices, a theme that comes up when traders analyze bitcoin price moves. The relationship is loose, though, and can break down for long stretches.

Limits of M2

M2 is context, not a trading signal. The data arrive weeks after the month ends and are revised later. Its link to inflation is loose: M2 grew rapidly in 2020 and 2021 before prices rose, yet in other periods strong money growth brought little inflation, because the speed at which money changes hands also varies. For that reason it is usually read next to CPI data, which measure price changes directly.

Conclusion

M2 counts the money the public can spend quickly, from cash and deposits to near money such as small time deposits and retail money market funds. Read its growth rate rather than its level, check the release date and later revisions, keep the 2020 break in mind when comparing it with M1, and use it as background for a view on liquidity, never as a stand-alone reason to open a trade.

Disclaimer: Trading involves significant risk of capital loss and may not be suitable for all investors. Past performance does not guarantee future results.