U.S. Monetary Conditions — Velocity of M2 Money Stock: slow recovery from pandemic-era collapse, still far from pre-2020 norms
The Velocity of M2 Money Stock measures the turnover of broad money in the economy. It is constructed as the ratio of nominal GDP to the average level of M2 over the same period, summarizing how intensively a given stock of money is associated with nominal spending. Because it is a ratio, velocity can move sharply when money balances and nominal activity adjust at different speeds, especially around large policy shocks and shifts in liquidity preference.
Recent dynamics
From early 2023 through mid-2025, M2 velocity has risen gradually and persistently, moving from the low 1.29 area to roughly 1.41. The sequence is notably smooth, with incremental quarterly gains through 2023 and 2024 and a further step-up into 2025. This pattern is consistent with a normalization process rather than a regime break, as the series continues to recover from the exceptionally depressed levels established during the pandemic period.
The most recent observations indicate that the recovery is ongoing but slow-moving. After approaching the mid-1.39 range by late 2024 and early 2025, velocity edged higher again by mid-2025. The absence of abrupt acceleration suggests that money turnover is improving at the margin, yet the economy remains in a low-velocity configuration relative to earlier cycles, implying that the post-2020 adjustment is incomplete.
Interpretation and economic signal
The pandemic-era collapse in velocity is best understood through the arithmetic of the ratio and the behavioral response to an extreme shock. M2 expanded rapidly as policy support and balance-sheet channels created a large increase in liquid deposits, while nominal spending could not rise proportionally amid shutdowns, uncertainty, and a sharp increase in precautionary saving. In such episodes, money is held as a buffer rather than circulated, pushing velocity lower even as the money stock rises.
The subsequent recovery reflects a gradual reactivation of turnover as the economy reopened, excess liquidity began to unwind, and spending normalized relative to money balances. However, the persistence of low velocity indicates that the system has not fully re-anchored to pre-pandemic circulation behavior. In practical terms, a rising-but-low velocity regime is consistent with an economy that has absorbed part of the shock-driven liquidity bulge but still carries a legacy of elevated money holdings and a higher propensity to hold liquid balances.
Conclusion
M2 velocity has been recovering steadily since 2023, signaling a slow normalization in money turnover after the pandemic-driven collapse. Even so, the recovery remains incremental and leaves velocity in a structurally low range, implying that broad money is still circulating less intensively than in prior expansions. The current configuration is therefore best characterized as continued normalization from an extreme dislocation, rather than a return to pre-2020 monetary dynamics.