What Is Included in the M2 Money Supply?

The Investopedia Team

Investopedia contributors come from a range of backgrounds, and over 25 years there have been thousands of expert writers and editors who have contributed.

Learn about our

Updated June 09, 2025

Reviewed byCaitlin Clarke

Fact checked by

Michael Rosenston

Fact checked byMichael Rosenston

Michael Rosenston is a fact-checker and researcher with expertise in business, finance, and insurance.

Learn about our

Definition

The Federal Reserve's M2 weekly measurement estimates the U.S. liquid money supply.

What Is M2?

M2 is the U.S.Federal Reserve estimate of liquid assets, including cash on hand, money deposited in checking accounts, savings accounts, and other short-term saving vehicles such as money market funds and certificates of deposit (CDs). M2 includes the Fed'sM1 figure, which historically only measured currency stock, checking account values, and travelers' checks. Savings deposits, once a component of M2, were moved to M1 in 2020.

Key Takeaways

Cash, checking deposits, and other deposits readily convertible to cash, such as CDs, are considered liquid money and are measured by the Fed's M2 money supply measurement.
M1 is included in M2 but only measures cash, savings accounts, checking accounts, and travelers' checks.
Understanding how much money is circulating in the economy impacts interest rates, inflation, and the economy.

Economists and central banks track M2 to gauge the overall health of the economy.
Investopedia / Julie Bang

Measuring Money

The Fed estimates the money supply in various ways. These measures are typically classified as "M" s and fall along a spectrum from narrow to broadmonetary aggregates. M2 is a more comprehensive calculation than M1 and includes highlyliquid assets not intended to be routinely used as cash. Consumers and businesses don't usually use time deposits when making purchases or paying bills, but they could convert them to cash quickly.

Economists use the broader M2 number when discussing the money supply because modern economies often involve transfers between different account types. For example, a business may periodically transfer $10,000 from amoney market account to a checking account. This transfer would increase M1, which doesn’t include money market funds, while keeping M2 stable since it contains both accounts.

M2 is a critical factor in forecastinginflation. Inflation and current interest rates have major ramifications for the general economy, as they heavily influence job availability, consumer spending, business investment, currency strength, and trade balances.

Important

The Federal Reserve releases M1 and M2 numbers every Thursday at 4:30 p.m.

M2 and Monetary Policy

The Federal Reserve's dual mandate is price stability and maximum sustainable employment. One way to maintain price stability is to manipulate the M2 money supply. The M2 numbers provide insight into direction, extremity, and efficacy of the Federal Reserve's ongoing policy.

In January 2000, M2 equaled $4.7 trillion and was over $22 trillion in March 2025. The most extreme growth occurred from February 2020 to June 2020 during the COVID-19 pandemic when M2 jumped from $15.3 trillion to $18 trillion. Other large increases have coincided with economic weakness, during which the Fed employed expansionarymonetary policy.

What Was M3?

M3 was the broadest form of money until 2006 and consisted of M2 plus institutional money funds, large time deposits, repurchase agreements, and Euro accounts. M3 was discontinued because the Federal Reserve Board decided that the aggregate did not improve upon the information provided with M2.

What Happens When the M2 Money Supply Increases?

When there is more cash available, more is spent. This may lead to inflationary pressure. The Federal Reserve constricts the money supply when the inflation rate rises.

What Are Considered "Small Time Deposits?"

Small time deposits are those with terms greater than 7 days and values less than $100,000 at all depository institutions.

The Bottom Line

The Federal Reserve tracks liquid assets to steer monetary policy. M2 numbers are released weekly and provide economists with insights into inflationary levels.

Article Sources

Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in oureditorial policy.