U.S. M2 Money Supply Hits $21.5 Trillion in December, Bullish Signal for Risk Assets
In December, the U.S. M2 money supply reached $21.5 trillion, approaching its all-time high, a sign of continued liquidity growth in the economy.
The M2 money supply measures the total amount of money circulating within an economy, including both liquid assets (like cash) and less liquid forms (such as savings deposits). Meanwhile, the Consumer Price Index (CPI) tracks changes in the average price of goods and services, serving as an indicator of inflation levels.
The persistent increase in the M2 money supply is considered a bullish sign for risk-on assets, as it suggests more liquidity is entering the market. This influx of liquidity often flows into riskier investments first, driving up their value.
Since January 2024, the M2 money supply has reached new monthly highs, highlighting its ongoing growth. While the Federal Reserve works to reduce inflation by tightening monetary policy through quantitative easing and maintaining elevated interest rates to bring CPI back to its 2% target, the M2 money supply continues its upward trend. This ongoing increase in liquidity could continue to support risk assets in the near term.
