U.S. M2 Money Supply Hits $21.5 Trillion in December, Signaling Growth for Risk Assets

The U.S. M2 money supply reached $21.5 trillion in December, just short of its all-time high, continuing its upward trajectory and signaling a positive environment for risk assets.

The M2 money supply includes cash, checking accounts, savings accounts, and other near-liquid assets, providing a broader picture of the money circulating in the economy. In contrast, the Consumer Price Index (CPI) measures inflation by tracking the average change in prices for goods and services.

The ongoing expansion of the M2 money supply is seen as a bullish signal for risk assets, as it indicates increased liquidity entering the market. Historically, this additional liquidity tends to flow into riskier investments, boosting their value.

Since January 2024, the M2 money supply has set new monthly records, reflecting continued growth. Although the Federal Reserve has been tightening monetary policy through higher interest rates and efforts to reduce inflation, the M2 money supply continues to grow. This persistent increase in liquidity is likely to continue providing support for risk assets in the near future.