Money & Finance › The Fed, money supply & inflation
The money supply: M0, M1, M2 and M3
· Concept
Fact, law or dataA rule, statute, definition or measured number.
The money supply is the total money people and businesses hold, measured in widening circles: M0, M1, M2 and M3.
See it on the Money & Finance map →How it works
M0, the monetary base, is cash plus bank reserves at the Fed. M1 is cash held by the public plus checking and, since 2020, savings deposits. M2 adds small CDs and retail money market funds; it is the headline measure, about $22 trillion in late 2025. M3, with large deposits and institutional funds, has not been published by the Fed since 2006. Most of it is bank deposits created by lending, not printed cash. M2 jumped about 40% in 2020–22.
Why it matters
Rapid money growth can foreshadow inflation, and shrinking money can signal tight credit, so investors and the Fed watch it for clues.
Facts, rules and data
The Fed's monthly H.6 release, with data back to 1959, free on FRED. Friedman and Schwartz's A Monetary History of the United States (1963) rebuilt figures back to 1867.
Debates and risks
How useful money measures are for policy is debated; the Fed dropped money targets in the 1990s, but the 2021 inflation revived interest.
Inside this (5)
Connections (5)
▸M0, the monetary base: currency plus bank reserves is the narrowest measure of The money supply: M0, M1, M2 and M3Fact, law or data
The connection
The monetary base is the money the Fed creates directly: currency and bank reserves. Broader measures build on it as banks lend and create deposits. It is the narrowest measure, though reserves are left out of M1 and M2, which count only money held by the public.
When and why
US; tracked on the Fed's balance sheet since 1914, and called 'high-powered money' by Friedman and Schwartz in 1963.
How we know
Currency and reserves are liabilities on the Fed's own balance sheet, reported weekly in the H.4.1 release.
Debates and risks
How tightly the base drives broad money is disputed: after 2008 it roughly quadrupled while M2 grew modestly.
▸M1: cash and checking deposits (redefined 2020) is a narrow slice of The money supply: M0, M1, M2 and M3Fact, law or data
The connection
M1 is the most spendable slice of the money supply: currency in people's hands plus deposits they can spend at once. It leaves out bank reserves and less liquid holdings such as CDs and money market funds.
When and why
Fed data back to 1959; redefined in 1980 and again in May 2020.
How we know
The Fed's H.6 statistical release defines and reports it monthly.
Debates and risks
M1 guided Fed policy in the late 1970s and early 1980s; its unstable link to spending ended that, and its usefulness is still debated.
▸M2: cash, checking, savings and money market funds is the headline measure of The money supply: M0, M1, M2 and M3Fact, law or data
The connection
M2 is what most analysts mean by 'the money supply': it captures money people use and keep for near-term spending. Since the Fed stopped publishing M3 in 2006, M2 has been the broadest official US measure.
When and why
The Fed's H.6 release; monthly data since 1959, about $22 trillion in late 2025.
How we know
Fed definitions and data, and its use as the standard money measure in research and market commentary.
Debates and risks
Whether M2 is the right gauge, or broader private measures such as Divisia money indexes are better, is debated by monetary economists.
▸M3: broad money, no longer published was the broadest official measure of The money supply: M0, M1, M2 and M3Fact, law or data
The connection
The Fed's measures nest like rings: M1 is currency and checking deposits; M2 adds savings, small CDs and retail money funds; M3 added institutional money. M0, the base, counts currency and bank reserves separately. Dropping M3 in 2006 left M2 as the broadest official US measure.
When and why
The Fed began publishing M1, M2 and M3 in 1971 and redefined them in 1980; M3 ended in March 2006.
How we know
The Fed's H.6 release history and its November 2005 notice explaining why M3 would end.
Debates and risks
Whether any money aggregate still predicts spending or inflation is debated; some economists prefer weighted 'Divisia' measures that count each asset by how money-like it is.
▸How banks create money: lending and fractional reserves creates most of The money supply: M0, M1, M2 and M3Fact, law or data
The connection
When a bank makes a loan, it credits the borrower's account with a new deposit, and that deposit is money. Most of M2 consists of such deposits, created by lending and destroyed as loans are repaid. Printed cash is only about a tenth.
When and why
Modern banking since the goldsmith-bankers of 1600s London; described for today's system by the Bank of England in 2014.
How we know
Bank balance sheets and Fed data; the Bank of England's 2014 paper 'Money creation in the modern economy' explains the mechanism.
Debates and risks
Whether bank lending is limited mainly by reserves, capital rules or loan demand is argued; most central banks now say capital and demand.