The Fed has defined three monetary agregates (M1, M2 and M3) to measure the amount of money circulating in an economy i.e. the overall money supply.

The M2 measure of the U.S. money supply consists of M1, plus certain overnight repurchase agreements and certain overnight Eurodollars, savings deposits (including money market deposit accounts), time deposits in amounts of less than $100,000 and balances in money market mutual funds (other than those restricted to institutional investors).

Note: the Fed's definition of the money supply includes only what the non-bank sector holds. Thus the reserves of banks, i.e. vault cash and deposits at the Fed, though a part of the monetary base, are not included in the monetary aggregates.

The Fed measures money supply to help guide its monetary policy decisions. Market participants watch for strong growth in the money supply, which might lead to inflationary pressure,s as money inflates aggregate demand.