A guide to the net liquidity formula macro analysts use: how it works, why each component matters, and where its limits are. It describes the liquidity backdrop markets trade in now, not where they go next.
If you spend time in macro finance circles, you have seen one equation repeated endlessly: Net Liquidity = Fed Balance Sheet (WALCL) − Treasury General Account (TGA) − Overnight Reverse Repo (ONRRP). This formula, popularized by analysts like Darius Dale and Arthur Hayes, attempts to measure the "usable" dollar liquidity in the financial system — the cash that is actually available to support lending, trading, and risk-taking.
The intuition is simple. The Fed balance sheet represents total reserves injected into the system. But not all of those reserves are freely circulating. The TGA is cash locked up in the Treasury's bank account at the Fed — it is not available to the private sector until the government spends it. The ONRRP is cash parked by money market funds at the Fed overnight — also temporarily removed from productive financial channels.
By subtracting TGA and ONRRP from the Fed balance sheet, you get a cleaner measure of the liquidity that is actually working in markets. When net liquidity rises, markets tend to rally. When it falls, markets tend to struggle. The correlation is not perfect, but over multi-month horizons it has been one of the most reliable macro indicators available.
WALCL — the Federal Reserve's total assets — is the foundation of the formula. This number includes all the Treasuries, MBS, and lending facility balances the Fed holds. When the Fed does QE, WALCL rises. When it does QT, WALCL falls. As of early 2026, WALCL is approximately $6.8 trillion, down from a peak of $8.96 trillion in April 2022.
WALCL updates every Wednesday on the Fed's H.4.1 statistical release, and DollarLiquidity.com captures this data automatically. The weekly cadence means that short-term noise is filtered out, but major shifts (like the March 2020 QE explosion, which added $586 billion in a single week) are captured immediately.
The direction and pace of WALCL changes matter more than the absolute level. A Fed balance sheet at $7 trillion that is growing $50B/month is more bullish than a $8 trillion balance sheet that is shrinking $95B/month. The z-score on DollarLiquidity.com normalizes for this, making cross-period comparison straightforward.
The TGA is the US government's checking account at the Federal Reserve. When the Treasury collects taxes or issues bonds, cash flows into the TGA — this drains liquidity from markets because that money moves from private bank accounts to the government's account at the Fed. When the Treasury spends (Social Security, defense, infrastructure), cash flows out of the TGA back into the private sector — this adds liquidity.
The TGA is subtracted in the net liquidity formula because it represents cash that has been removed from the banking system. A TGA balance of $800 billion means $800 billion in reserves are sitting idle in the government's account rather than supporting financial activity. When the TGA drops (as during debt ceiling episodes), that cash re-enters the system and net liquidity rises.
TGA data updates daily from the US Treasury's Daily Treasury Statement, making it one of the most timely indicators on DollarLiquidity.com. Major TGA swings — like the $480 billion drawdown during the 2023 debt ceiling or the $557 billion rebuild after resolution — have historically corresponded to significant market moves.
The ONRRP facility allows eligible institutions (primarily money market funds) to deposit cash at the Fed overnight in exchange for Treasury collateral. A high ONRRP balance means excess liquidity is being warehoused at the Fed rather than flowing into financial markets. It is subtracted from the formula because, like the TGA, it represents reserves removed from productive use.
The ONRRP peaked at $2.554 trillion in December 2022 and has since drained to approximately $100-200 billion by early 2026. This $2+ trillion drainage was one of the most important liquidity events of the 2023-2024 cycle — it effectively offset the Fed's QT program and fueled the stock and crypto rally that most analysts did not anticipate.
With ONRRP now near its floor, this component contributes less to net liquidity changes going forward. This is why DollarLiquidity.com watchers should increasingly focus on the other two components — Fed balance sheet direction and TGA flows — for the marginal liquidity signal.
ON RRP depletion also changes how the formula behaves. From 2022 to 2024 the facility was the main shock absorber: its drain released more than $2 trillion that offset QT and heavy Treasury issuance. That buffer is gone. With the ON RRP term near zero, net liquidity is approximately Fed assets minus the TGA, so any balance-sheet runoff now reduces it one for one, and a TGA rebuild drains bank reserves with no ON RRP cash to fill the gap. TGA swings carry more weight in the series than they did in 2023, and score transitions on DollarLiquidity.com can come faster.
From January 2020 to the present, net liquidity has had a rolling 90-day correlation of approximately +0.70 with the S&P 500 and +0.65 with Bitcoin. Those are high figures for a single macro variable, and they are contemporaneous: they measure how closely the series moved together, not which one moved first. The episodes usually cited read the same way. Net liquidity surged on QE plus a TGA drawdown around the March 2020 bottom, peaked as QE ended around the January 2022 top, and rose on ONRRP drainage plus a TGA drawdown in the 2023 recovery. Each time, liquidity and prices turned in the same window.
The formula is not a timing tool. It does not tell you which day to buy or sell, and it has not called every turn. What it gives you is the backdrop: over multi-month windows, stretches of rising net liquidity have tended to coincide with firm risk assets and stretches of falling net liquidity with weak ones, while at daily and weekly horizons the link breaks down. Read it as a description of current conditions, not a forecast.
On DollarLiquidity.com, the Dollar Liquidity Index (DLI) combines the net liquidity flow with funding-stress measures and shows credit spreads, real yields and the VIX alongside it. That breadth matters because market-risk measures register volatility events, such as August 2024, that the structural formula misses. The DLI is coincident as well: it describes the liquidity stance today, not where prices go next. Check it daily to see how the components interact.
Net liquidity is the Fed's total assets minus the Treasury General Account minus the ON RRP balance. The idea is to strip out the two large liabilities that hold cash away from the banking system, leaving an estimate of the dollar liquidity actually available to private markets.
No — it is a description of the backdrop, not an entry signal. The relationship with risk assets holds at the regime level over months, and breaks down badly at daily and weekly horizons. This site validates its score against contemporaneous stress benchmarks rather than multi-day-ahead lead-lag, precisely because the coincident relationship is the one the data supports.
This site publishes the computed series on the net liquidity indicator page and serves it without authentication at /api/series/net-liquidity. The three inputs are public: WALCL from FRED, the TGA from the Daily Treasury Statement, and the ON RRP balance from the New York Fed.
No. R-squared measures how much of the variation two series share over a sample that has already happened; it says nothing about forecasting the next move. A contemporaneous fit that strong is genuinely informative about what drives risk appetite, and it is not a forecast. Fitting the same relationship out of sample, at a horizon you could actually trade, produces far weaker results.
The arithmetic is unchanged but one term has stopped doing work. Subtracting a balance that sits near zero adds nothing, so net liquidity now moves almost entirely with the Fed's assets and the Treasury's cash account. In practice that makes the series more sensitive to fiscal timing than it was in 2023, when the ON RRP absorbed much of the swing.
Only if you can say what question the addition answers. Standing repo usage, the discount window and foreign repo pool all move reserves and none of them is in the three-term version. Adding terms improves the fit and makes the series harder to reason about, which is a real trade-off; this site keeps the published formula simple and handles the rest through separate funding-stress indicators.
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