What it is
M1 includes physical currency, demand deposits, and traveler's checks. M2, a broader measure, includes M1 plus savings deposits, money market accounts, and small-denomination time deposits. The Federal Reserve tracks these aggregates to understand the amount of money available for spending and investment in the economy.
Changes in the money supply can influence inflation, interest rates, and economic growth. An expanding money supply, often through central bank actions like quantitative easing, can stimulate economic activity but may also lead to inflation. Conversely, a contracting money supply, through quantitative tightening, can slow the economy and curb inflation.
Why it matters
Money supply trends can signal future inflation or deflation, influencing the purchasing power of your investments and savings.
Reviewed under editorial standardsUpdated September 26, 2026Not investment advice