M0 M1 M2 M3.
The money supply tiers.
The Federal Reserve tracks money in tiers because not all money is the same kind of money. A dollar in your wallet behaves differently from a dollar in a money market fund. Bank reserves at the Fed are different from your checking account balance. Each tier responds differently to policy and affects inflation differently. Understanding the tiers explains why a 24.9% M2 expansion in 2020 produced 9.1% CPI inflation in 2022, not 2020.
M0 is base money the Fed controls directly. M1 is money you can spend today. M2 includes savings accounts and money market funds. M3 (discontinued in 2006) covered large institutional deposits. Each tier is larger than the last. When M2 grows faster than the economy produces goods, prices eventually rise, with a 12 to 24 month lag.
Why tiers exist
Not all money is the same kind of money. A dollar bill in your wallet behaves differently from a dollar in a money market fund. A bank reserve at the Federal Reserve is different from a balance in your checking account. The Fed tracks these distinctions because each tier responds differently to policy and affects inflation differently.
Understanding the tiers explains why the Fed can flood the banking system with reserves and not immediately cause inflation, why velocity matters, and why the 2020-2021 expansion eventually produced 2022 inflation rather than immediate price rises.
M0: the monetary base
What it contains: physical currency in circulation plus bank reserves held at the Federal Reserve. Both are direct liabilities of the Fed. Also called base money or high-powered money.
As of early 2026: approximately $5.8 trillion verify×DON'T TRUST, VERIFYClaim: US monetary base (M0) is approximately $5.8 trillion as of early 2026.Verify at: Federal Reserve H.3 release ↗The H.3 release reports aggregate reserves of depository institutions and the monetary base weekly..
Why "high-powered"
Every dollar of M0 can support multiple dollars of M1 and M2 through lending. When the Fed expands M0 by buying bonds (quantitative easing), banks receive reserves. Those reserves can support new loans, which create new deposits, which expand M1 and M2. One dollar of M0 can become several dollars of broader money.
The Fed directly controls M0. It does not directly control M1 or M2; those expand through bank-lending decisions in response to demand and rates.
Bitcoin as M0
Bitcoin held in self-custody behaves like M0. You hold the base asset directly. No bank can create additional Bitcoin against your holdings. There is no Bitcoin equivalent of M1, M2, or M3 in the base protocol. Exchange-held Bitcoin is more like an M1-equivalent claim on a custodian. Detail at How Money Works.
Money Supply Tiers, US 2026 (approximate)
Source: Federal Reserve H.3 and H.6 releases.
M1: money you can spend today
What it contains: M0 plus demand deposits (checking accounts) and other checkable deposits. Money accessible immediately, with no conversion required.
As of early 2026: approximately $18 trillion verify×DON'T TRUST, VERIFYClaim: US M1 is approximately $18 trillion as of early 2026.Verify at: Federal Reserve H.6 release ↗ · FRED M1SL ↗The Fed redefined M1 in May 2020 to include savings deposits, which roughly tripled the headline number overnight; comparisons before and after that change require care..
The key property: you can write a check, swipe a card, or transfer M1 balances instantly.
What happened in 2020
M1 more than doubled between March and December 2020, the largest single-year expansion in modern history. Stimulus payments landed directly in checking accounts, expanding M1 rapidly. Some of the move was the May 2020 redefinition that folded savings deposits into M1; the rest was real spending-power injection verify×DON'T TRUST, VERIFYClaim: US M1 expanded sharply in 2020 due to a combination of the May 2020 Fed redefinition and stimulus-driven deposit growth.Verify at: FRED M1SL historical chart ↗The redefinition is documented in Federal Reserve H.6 release notes; the stimulus-driven component is observable in M2 (which is unaffected by the M1 redefinition)..
M2: broad money
What it contains: M1 plus savings account balances, retail money market fund balances, and small certificates of deposit (under $100,000).
As of early 2026: approximately $21 trillion verify×DON'T TRUST, VERIFYClaim: US M2 is approximately $21 trillion as of early 2026.Verify at: FRED M2SL ↗M2 is the most-watched US monetary aggregate. It grew roughly 41% from Feb 2020 through Apr 2022.. M2 is the measure the Federal Reserve watches most closely for medium-term inflation signals.
The inflation relationship
When M2 grows significantly faster than real economic output (GDP), prices tend to rise with a 12 to 24 month lag. M2 grew 24.9% in 2020. CPI peaked at 9.1% in June 2022. The lag was approximately 18 months verify×DON'T TRUST, VERIFYClaim: US M2 grew approximately 24.9% in 2020 and CPI peaked at 9.1% in June 2022.Verify at: FRED M2SL ↗ · BLS CPI ↗M2 year-over-year December figures from FRED. CPI June 2022 print of 9.1% is the BLS published headline for the cycle peak..
The velocity problem
The equation of exchange is MV = PQ: money supply times velocity equals price level times output. M2 growth only produces inflation if velocity holds steady. During 2008 to 2015, QE expanded M2 but velocity collapsed simultaneously. The inflation many predicted did not materialize because each dollar circulated far less frequently verify×DON'T TRUST, VERIFYClaim: US M2 velocity (M2V) fell sharply during 2008-2014 and again during 2020-2021 before partially recovering.Verify at: FRED M2V ↗M2V is computed as nominal GDP / M2. The 2020 collapse and partial recovery are the largest in the post-WWII record..
Your savings accounts and money market funds are M2 money. When you hold SPAXX in a Fidelity Cash Management Account, that balance is part of M2. Detail at Cash Management.
Velocity of M2 (how fast each dollar circulates)
Source: FRED M2V series (nominal GDP divided by M2).
M2 Money Supply Growth vs CPI Inflation
Source: FRED M2SL and CPIAUCSL series, year-over-year December readings.
M3: the discontinued measure
What it contained: M2 plus large time deposits (over $100,000), institutional money market funds, repurchase agreements, and Eurodollars.
The Federal Reserve stopped publishing M3 in March 2006, citing the cost of data collection relative to its marginal value for monetary policy verify×DON'T TRUST, VERIFYClaim: The Federal Reserve discontinued M3 publication in March 2006.Verify at: Federal Reserve M3 discontinuation announcement ↗Various analysts (Shadow Government Statistics, Mark Skousen) reconstruct M3 from other published data; the reconstructions vary..
Critics argue this removed transparency at a time when shadow banking was expanding. Some analysts reconstruct M3 estimates from other data sources, but no official series replaces it.
The money multiplier: how M0 becomes M2
When you deposit $1,000:
- The bank holds a fraction in reserve.
- It lends the rest.
- That loan gets deposited elsewhere.
- That bank holds a fraction, lends the rest.
- The cycle continues.
One $1,000 deposit can support roughly $5,000 to $10,000 in total deposits across the banking system, depending on reserve ratios and how aggressively banks lend.
Post-2008 change
The Fed began paying interest on excess reserves in October 2008. Banks earned a return by holding reserves rather than lending them. The actual money multiplier fell significantly below the textbook level. Reserve requirements were reduced to zero in March 2020 verify×DON'T TRUST, VERIFYClaim: The Fed began paying interest on reserve balances in October 2008 and reduced reserve requirements to zero in March 2020.Verify at: Federal Reserve interest on reserve balances ↗The IORB and zero-reserve-requirement changes weakened the textbook link between base money and broader aggregates. Modern operating procedure relies on IORB and reverse-repo facility floors, not reserve scarcity..
Why this matters for your money
M0 matters because
When the Fed expands the base through bond purchases, it signals whether tight or loose monetary conditions are coming. The federal funds rate targets the overnight lending rate for M0 reserves between banks. This is the rate that flows through to your savings account yield. Detail at Cash Management.
M1 matters because
Rapid M1 growth signals immediate spending power entering the economy. Your checking account is M1. Watching M1 growth rates alongside CPI gives early warning of inflationary pressure (with the redefinition caveat: pre- and post-May 2020 are not directly comparable).
M2 matters because
Your high-yield savings account, SPAXX, and money market funds are M2 money. M2 growth rates historically predict CPI with a 12 to 24 month lag. When M2 grows at 5 to 7% annually, moderate inflation follows. When M2 grows at 25%, significant inflation follows.
This is the structural case for holding some assets outside M2: assets whose supply cannot be expanded by policy. Index funds represent claims on real productive output. Bitcoin has a fixed supply regardless of monetary conditions. Detail at Bitcoin Allocation, Index Funds, and the visualization at M2 vs Inflation Tracker.
What this changes for tomorrow
- Bookmark FRED's M2SL chart. When M2 growth exceeds GDP growth meaningfully, expect higher inflation 12 to 24 months later.
- Cash sitting in M2 instruments (savings, money markets) loses real purchasing power whenever M2 grows faster than output. Holding more than 3 to 6 months in cash is a structural loss to inflation. Detail at the real return calculator.
- Assets outside M2 (real estate, productive equity, sound-money assets) are the structural hedge. Sizing depends on your situation; the tools at budget builder and Bitcoin allocation range help.
Related
Sources
- Federal Reserve H.3, Aggregate Reserves of Depository Institutions and the Monetary Base: federalreserve.gov/releases/h3/
- Federal Reserve H.6, Money Stock Measures: federalreserve.gov/releases/h6/
- FRED M1SL, M1 Money Stock: fred.stlouisfed.org/series/M1SL
- FRED M2SL, M2 Money Stock: fred.stlouisfed.org/series/M2SL
- FRED M2V, Velocity of M2 Money Stock: fred.stlouisfed.org/series/M2V
- Federal Reserve Discontinuation of M3: federalreserve.gov/releases/h6/discm3.htm
Last updated 2026-05-01. Not financial advice. Aggregates are reported with a lag; verify the latest figures against the FRED series.
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