M2 Money Supply Reaches $21.5 Trillion, Influencing Market Liquidity
The M2 Money Supply in the US reached $21.5 trillion in late December, nearing its all-time high. This ongoing increase indicates that liquidity remains high despite the Federal Reserve's attempts to tighten monetary conditions.
Key Points
- M2 money supply includes cash, checking deposits, and less liquid assets like savings accounts.
- A rising M2 is often seen as bullish for risk assets such as stocks and cryptocurrencies.
- Bitcoin’s price correlates closely with M2; analysts predict a potential 20% drop if M2 growth slows.
- The Consumer Price Index (CPI) reflects inflation trends influenced by M2 growth.
- The Federal Reserve aims to stabilize inflation at 2% through high interest rates and quantitative tightening.
- Continued M2 expansion could challenge the Fed's strategies and lead to further rate hikes.
Overall, while increased M2 supports financial market momentum, it complicates inflation control efforts.