Fed Net Liquidity

The Federal Reserve’s balance sheet is publicly available, as is the U.S. Treasury’s cash account — the Treasury General Account (TGA) — and the amount parked overnight in reverse repo operations. Taken together, these three figures provide an estimate of how many dollars are actually available to the financial system at any given time, net of the funds the Treasury keeps idle in its account and the money market funds park at the Fed rather than putting back into circulation.

The relationship between this measure of liquidity and the performance of risk assets has been observed several times in recent years, but it is not mechanical. It is one of several macro factors that should be considered alongside others, rather than an indicator that can independently anticipate the direction of financial markets.