Money Supply

The money supply is the total amount of money in an economy that is available for spending or for holding as a short-term store of value. The Federal Reserve, which measures it, describes it as "the total amount of money—cash, coins, and balances in bank accounts—in circulation," and more precisely as "a group of safe assets that households and businesses can use to make payments or to hold as short-term investments."

Two names for the same subject are worth untangling before reading any data. The Fed uses "money supply" in its reader-facing material, and its own statistical release is titled "Money Stock Measures," known by its release letter as H.6. The Fed connects the two itself: "Data on money supply are reported in the Federal Reserve's H.6 statistical release, 'Money Stock Measures.'" So a reader searching for money supply data is looking for a document that does not use the phrase in its title, and the individual measures inside it are called monetary aggregates.

The definitions in H.6 are more specific than the plain-language summaries, and the difference matters if a figure is being used for anything. In the release's own words, "M1 consists of (1) currency outside the U.S. Treasury, Federal Reserve Banks, and the vaults of depository institutions; (2) demand deposits at commercial banks (excluding those amounts held by depository institutions, the U.S. government, and foreign banks and official institutions) less cash items in the process of collection and Federal Reserve float; and (3) other liquid deposits, consisting of other checkable deposits (or OCDs ...) and savings deposits (including money market deposit accounts)." M2 is defined as "M1 plus (1) small-denomination time deposits (time deposits in amounts of less than $100,000) and (2) balances in retail money market funds (MMFs), less individual retirement account (IRA) and Keogh account balances at depository institutions and MMFs." That final subtraction is absent from most summaries of M2, including the Fed's own plain-language page, and the reason for it is stated in the release's technical questions: when calculating M2 the Fed "excludes deposits that are not liquid, such as IRAs that include large penalties for preretirement withdrawals."

The monetary base is a third quantity and is not the money supply, though it is sometimes listed beside M1 and M2 as though it were another version of the same thing. H.6 defines it arithmetically: "Monetary base equals currency in circulation plus reserve balances," where reserve balances are "balances held by depository institutions in master accounts and excess balance accounts at Federal Reserve Banks." Reserve balances are money that banks hold at the central bank, not money households can spend, which is why the base can move sharply without M2 moving at all.

The single most useful practical warning concerns May 2020. In March 2020 the Board reduced reserve requirement ratios on net transaction accounts to zero, which, in the Fed's words, "eliminated reserve requirements for all depository institutions and rendered the regulatory distinction between reservable 'transaction accounts' and nonreservable 'savings deposits' unnecessary." In April 2020 it removed the six-per-month transfer limit on savings deposits from its reserve-requirement regulation, which left savings deposits "having the same liquidity characteristics as the transaction accounts" already inside M1. The Fed therefore combined savings deposits with other checkable deposits into a single item called "other liquid deposits" and placed it in M1. It announced the change on December 17, 2020, first published it in the release of February 23, 2021, and applied it retroactively to May 2020. The consequence, stated in the same document: "Beginning with the May 2020 observation, M1 will increase by the size of the industry total of savings deposits, which amounted to approximately $11.2 trillion. M2 will remain unchanged." Anyone reading a long M1 chart as one series across that date is reading a definitional change as an economic event.

M3 is a related trap because the announcement and the discontinuance are a year apart. On November 10, 2005 the Board published a notice stating that "on March 23, 2006, the Board of Governors of the Federal Reserve System will cease publication of the M3 monetary aggregate," along with large-denomination time deposits, repurchase agreements and Eurodollars. The stated reason is worth quoting because it is unusually blunt: "M3 does not appear to convey any additional information about economic activity that is not already embodied in M2 and has not played a role in the monetary policy process for many years. Consequently, the Board judged that the costs of collecting the underlying data and publishing M3 outweigh the benefits." The Board announced the decision in 2005 and stopped publishing in 2006, so a page dating the end of M3 to 2005 has the announcement, not the event.

Definitions are still being revised, which is a reason to read the release notes rather than a chart. Effective July 28, 2026 the Fed changed where the retirement-account subtraction is applied, moving "from netting IRA and Keogh account balances at DIs at the component level to netting them at the aggregate M2 level," and applied the change retroactively to the beginning of each affected series. Not seasonally adjusted M2 was unchanged by it, and the seasonally adjusted series was revised only slightly, but the published component series beneath M2 moved.

Measurement runs from bank reports to a published aggregate. Depository institutions report their deposit balances, the Fed sorts those balances into categories by how liquid they are, and each aggregate is the sum of its categories. Because it is a sum of stocks rather than a flow, the money supply has a level at a point in time rather than a rate. H.6 presents monthly average levels, seasonally adjusted and not seasonally adjusted, and appears "on the fourth Tuesday of every month, generally at 1 p.m."

The structure means the aggregates are nested, so the same dollar can appear in more than one of them. A hypothetical household illustrates the nesting. Suppose a family holds $400 in cash, $2,600 in a checking account, $9,000 in a savings account, a $5,000 certificate of deposit with a face amount under $100,000, and $3,000 in a retail money market fund. Their contribution to M1 is $400 + $2,600 + $9,000 = $12,000, because since May 2020 savings deposits sit inside M1. Their contribution to M2 is $12,000 + $5,000 + $3,000 = $20,000. If the same family had held that certificate of deposit inside an individual retirement arrangement at the bank, the M2 definition would net it out, and their M2 contribution would be $15,000 rather than $20,000.

Now run the same family through the pre-2020 definitions to see the break. On the old boundary, savings deposits sat outside M1, so their M1 contribution would have been $400 + $2,600 = $3,000, while their M2 contribution would have been unchanged at $20,000. Nothing about the family's finances changed between the two calculations. That is the $11.2 trillion industry-wide shift in miniature: a reclassification that moved a large number from one aggregate into a narrower one, and left the broader aggregate alone.

What the aggregates are good for

• They are consistently defined, monthly, published free of charge, and accompanied by footnotes stating exactly what is inside each measure.
• The nesting from currency to M1 to M2 gives a graded picture of how liquid household and business balances are.
• The Fed documents its own definitional breaks and quantifies them, which makes a discontinuity findable rather than invisible.

Where they mislead

• The aggregates are sums of balances, so a change can reflect a reclassification rather than any change in behavior. May 2020 is the standing example.
• The monetary base is often presented alongside M1 and M2 as a third measure of the money supply, but most of it is bank reserves rather than spendable household money.
• M2 nets out certain retirement-account balances, which means it is not simply "all the money in bank accounts."
• There is no broader official U.S. aggregate any more. M3 stopped in 2006, and the Fed's stated reason was that it added nothing to M2.
• A money-supply level answers no question on its own. What it does to prices or output depends on how fast the money turns over and on much else, which is why the Fed describes money data as "just part of a wide array of financial and economic data that policymakers review."