U.S. M2 Money Supply Hits $21.5 Trillion in December, Suggesting Bullish Momentum for Risk Assets
In December, the U.S. M2 money supply rose to $21.5 trillion, approaching its all-time high, signaling an ongoing influx of liquidity into the economy and a potentially bullish outlook for risk assets.
The M2 money supply encompasses all physical currency in circulation, checking deposits, savings accounts, and other near-liquid assets. The Consumer Price Index (CPI), on the other hand, tracks the average change in the price of goods and services, offering insights into inflation trends.
A growing M2 money supply is often seen as a bullish catalyst for risk assets, as it indicates more money is entering the market, which typically finds its way into higher-risk investments first, driving their prices up.
Since January 2024, the M2 money supply has been setting new monthly records. Even as the Federal Reserve works to curb inflation through tighter monetary policy measures like raising interest rates, the M2 money supply continues to grow. This ongoing increase in liquidity is expected to support further momentum for risk assets.
