Measuring money with M2
The FRED Blog explains M2, a key monetary aggregate that measures readily available money in the economy, detailing its components and a recent recalculation change.
Intelligence analysis by Gemini 2.5 Flash
M2 is a crucial measure of the money supply, encompassing liquid assets like cash, checking, and savings accounts, along with small-denomination time deposits and retail money market funds. The Federal Reserve recently adjusted how individual retirement account (IRA) and Keogh balances are subtracted from M2, impacting component values but not the overall total.
Imagine all the money people have that they can easily spend, like the cash in their wallet or the money in their regular bank account. That's called M2. It also includes money in some savings accounts. Grown-ups use M2 to understand how much spending money is out there, which helps them figure out if prices might go up or down, kind of like counting all the coins in a giant piggy bank to see how much everyone has.
Analysis
The Federal Reserve's monetary aggregates provide essential insights into the amount of money circulating within the economy, with M2 being a prominent measure. This aggregate specifically targets funds that are readily available and easily convertible into cash, offering a snapshot of the economy's liquidity. As of June 2026, the total value of M2 stood at a substantial $23 trillion, underscoring the vast scale of liquid assets in the financial system.
M2 Components
M2 is a broad measure that builds upon M1, which itself includes the most liquid forms of money such as physical currency, demand deposits (checking accounts), and other checkable deposits. Beyond M1, M2 incorporates several other categories of liquid assets. These include small-denomination time deposits, which are savings accounts or certificates of deposit with balances below a certain threshold, and retail money market funds, which are mutual funds that invest in highly liquid, short-term instruments. The inclusion of these components aims to capture a more comprehensive picture of the money supply that households and businesses can access relatively quickly.
June 2026
As of June 2026, the total M2 monetary aggregate reached $23 trillion, a significant figure that highlights the sheer volume of readily available funds within the U.S. economy. This specific data point provides a benchmark for analysts and policymakers to assess the overall liquidity and potential for spending or investment. The FRED graph, as described in the article, visually breaks down this total into its constituent parts, allowing for a clearer understanding of the relative contributions of M1, small-denomination time deposits, and retail money market funds to the overall M2 measure.
July 28, 2026
A notable recalculation change was implemented on July 28, 2026, concerning how individual retirement account (IRA) and Keogh retirement account balances are treated within the M2 calculation. Previously, these balances were subtracted from the individual components of M2, specifically small-denomination time deposits and retail money market funds. However, due to surveys indicating a growing share of these retirement funds are held in savings and checking-type accounts at depository institutions, the methodology was updated. Now, the total value of IRA and Keogh balances is subtracted directly from the overall M2 measure. While this change had almost no impact on the total value of M2, it did result in the recalculation and higher reported values for the individual components of small-denomination time deposits and retail money market funds, as reflected in historical data vintages available through ALFRED.
Key points
- M2 is a monetary aggregate that measures the amount of readily available money in the economy.
- It includes M1 (cash, checking, savings accounts), small-denomination time deposits, and retail money market funds.
- Individual retirement account (IRA) and Keogh balances are subtracted from M2 because they are not considered liquid assets.
- As of June 2026, the total M2 amounted to $23 trillion.
- A recalculation change on July 28, 2026, altered how IRA and Keogh balances are subtracted, affecting component values but not the overall M2 total.
