Broad money — cash and deposits plus money-market funds and savings. Its level and growth rate lead inflation and asset markets.
M2 is 'broad money' — it adds savings deposits, money-market funds and small time deposits to cash and checking deposits (M1). It captures the total liquidity in the economy, and its growth rate is used as a leading signal for inflation and asset markets.
M2 is a broad measure of the amount of money circulating in the economy. It includes highly liquid money such as cash and checking deposits (M1) plus savings deposits, small time deposits, and retail money market funds. The Federal Reserve publishes M2 monthly in its H.6 statistical release. It serves as a widely used gauge of overall liquidity conditions in the economy.
When M2 grows much faster than the economy, it signals abundant liquidity that can feed into inflation pressure with a lag; when M2 stagnates or contracts, it points to tightening liquidity, which is often associated with slowing growth and cooling inflation. The year-over-year growth rate and its direction matter more than the absolute level. The link between money supply and prices operates with long and variable lags, so M2 works best as a big-picture indicator rather than a precise forecasting tool. Comparing M2 growth with nominal GDP growth is a common way to judge whether liquidity is expansionary or restrictive.
Historically, periods of rapid M2 expansion have often coincided with strength in asset prices, including equities, real estate, and cryptocurrencies, while decelerating or shrinking money supply signals a less supportive liquidity backdrop. Because M2 is monthly and somewhat backward-looking, it is used mainly to assess the medium-term liquidity regime rather than to time short-term trades. Cross-checking M2 with the federal funds rate, the Fed's balance sheet, and bank lending growth gives a more complete picture of liquidity conditions.