M2 Money Supply vs CPI
M2 stood at $22.4 trillion in January 2026, up from $15.4 trillion in February 2020, a 46 percent expansion in six years. CPI peaked at 9.1 percent year-on-year in June 2022, roughly fifteen months after M2 growth peaked at 27 percent in February 2021, the cleanest example of the Friedman lag in the modern data.
Also known as: M2 Money Supply (M2, money supply) · CPI (All Urban) (CPI, consumer price index, inflation)
Why This Comparison Matters
M2 stood at $22.4 trillion in January 2026, up from $15.4 trillion in February 2020, a 46 percent expansion in six years. CPI peaked at 9.1 percent year-on-year in June 2022, roughly fifteen months after M2 growth peaked at 27 percent in February 2021, the cleanest example of the Friedman lag in the modern data. M2 then contracted by $1.0 trillion from April 2022 to October 2023, the first nominal contraction since the Great Depression, and CPI fell from 9.1 percent to about 3.0 percent through 2023 and 2024. By March 2026, headline CPI had reaccelerated to 3.3 percent on Iran-related energy costs, even as M2 grew 4 to 5 percent year-on-year.
What M2 Captures and Why It Matters
M2 is the broad measure of US money supply: currency in circulation, demand deposits and other checkable deposits, savings deposits, retail money market funds, and small-denomination time deposits under $100,000. It is published monthly by the Federal Reserve as series M2SL on a seasonally adjusted basis. M2 reached $22.44 trillion in January 2026, the latest available reading.
The series matters because, in the monetarist framing of MV=PQ, money supply (M) times velocity (V) equals price level (P) times real output (Q). When M grows faster than the economy can absorb, the residual shows up either in faster inflation or in faster velocity decline. The framework was central to mid-twentieth century macroeconomics, fell out of favor in the 1990s as velocity became unstable, and was rehabilitated by the 2020 to 2023 episode that produced the most extreme money supply movement in eighty years.
The 2020 to 2022 M2 Surge
M2 rose from $15.41 trillion in February 2020 to $21.74 trillion at its peak in April 2022, a $6.33 trillion increase in 26 months. The annualized growth rate of M2 hit 27 percent in February 2021, more than four times the 6.7 percent annual average from 2010 to 2019. Three forces drove the expansion: Treasury direct deposits to households (three rounds of stimulus checks totaling roughly $850 billion), Paycheck Protection Program loans converted to grants ($800 billion), and the indirect monetization of Treasury issuance via Fed Treasury and MBS purchases.
Fiscal versus monetary attribution debates remain unresolved, but the aggregate effect on M2 is clear. Stimulus checks deposited to checking accounts directly increased M2. Fed asset purchases credited bank reserves, which then fed into M2 through bank deposit expansion. The 2020 to 2022 M2 expansion was unique in scale and unique in its joint fiscal-monetary mechanism.
CPI Followed With a Lag
Headline CPI ran below 2 percent through most of 2020 (1.4 percent in January 2021) before beginning to rise. By January 2022 it was 7.5 percent. June 2022 marked the cycle peak at 9.1 percent year-on-year, the highest reading since November 1981. The lag from M2 growth peak (February 2021) to CPI peak (June 2022) was approximately fifteen months, well within Milton Friedman's "long and variable" lag estimate of 6 to 24 months.
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Frequently Asked Questions
What is the current M2 money supply?+
M2 stood at $22.44 trillion in January 2026, the most recent reported reading from the Federal Reserve's H.6 monetary aggregates release. M2 has grown roughly 4 to 5 percent year-on-year through 2025 and into 2026, returning to its pre-pandemic average growth rate. The April 2026 reading is scheduled for release on April 28, 2026. M2 includes currency in circulation, demand deposits, savings deposits, retail money market funds, and small-denomination time deposits under $100,000.
Did the 2020 to 2022 M2 surge prove the monetarist thesis?+
Largely yes, with caveats. M2 grew 41 percent from February 2020 to its April 2022 peak. Headline CPI peaked at 9.1 percent in June 2022, fifteen months after the peak rate of M2 growth in February 2021, consistent with Friedman's 12 to 18 month lag estimate. The mechanism was direct: stimulus checks and PPP loans landed as deposits in M2, then chased a constrained supply of goods and services. The caveat is that the relationship still depends on velocity, which collapsed from 1.41 to 1.13 over 2020 and partially absorbed the M2 expansion before it became inflation.
Why did 2009 to 2019 QE not cause inflation?+
Because QE in that era expanded bank reserves but not M2 in proportion. The Fed bought Treasuries and MBS from primary dealers, who deposited the proceeds at the Fed (earning IORB) rather than lending them out. Bank loan growth was sluggish through the 2010s as banks rebuilt capital and household demand for credit was weak after the housing crash. M2 grew 6.7 percent annually from 2010 to 2019, roughly in line with nominal GDP, so there was no excess money supply to chase prices. The 2020 episode was structurally different because Fed asset purchases funded fiscal transfers that landed directly in deposits.
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