Why do Federal Reserve Bank tracks M1 and M2?

The Federal Reserve Bank tracks M1 and M2 to monitor the money supply and assess the overall health of the economy. M1 includes the most liquid forms of money, such as cash and checking deposits, while M2 encompasses M1 plus near-money assets like savings accounts and time deposits. By analyzing these metrics, the Fed can make informed decisions about monetary policy, aiming to control inflation, stabilize prices, and foster economic growth. This tracking helps in understanding consumer behavior and predicting economic trends.