The M2 Money Supply Approaches All-Time High, a 6% CAGR Since 1980

The M2 money supply increased in December to $21.5 trillion, just shy of its all-time high.

The M2 money supply measures the total amount of money in circulation within an economy, including both liquid and less liquid assets. Meanwhile, the CPI index tracks the average price change of goods and services over time, which indicates inflation.

Continued growth in the M2 money supply is a bullish indicator for risk assets as it indicates more liquidity is entering the system, which typically finds itself in risk-assets first.

The M2 money supply has clocked in a new monthly high every month since January 2024. The M2 money supply influences CPI by affecting inflation trends. While the Federal Reserve is actively tightening through quantitative easing and keeping the Fed funds rate at an elevated level while trying to bring CPI back down to its 2% inflation target, the M2 money supply continues to grow.