Net liquidity is one of the most popular—and misunderstood—metrics in macro finance. It attempts to measure how much of the Federal Reserve's balance sheet is actually available to financial markets.

This article explains what net liquidity is, how it's calculated, and what it does (and doesn't) tell you about markets.

The Formula

Net Liquidity = Fed Assets − TGA − RRP

In terms of FRED series IDs:

Net Liquidity = WALCL − WDTGAL − RRPONTSYD

Let's break down each component.

Component 1: Fed Assets (WALCL)

What it is: The total assets held on the Federal Reserve's balance sheet.

What it includes:

Treasury securities (largest component)
Mortgage-backed securities (MBS)
Other Fed lending facilities

Why it matters: When the Fed buys assets through quantitative easing (QE), it credits banks with reserves—creating liquidity. When it sells assets through quantitative tightening (QT), it destroys reserves.

FRED series: WALCL (Federal Reserve Total Assets) Frequency: Weekly (Wednesday) Units: Millions of dollars

Historical Context

The Fed's balance sheet was ~$900 billion before 2008. It expanded dramatically during:

2008-2014: Quantitative easing (QE) programs following the Global Financial Crisis
2020: Emergency COVID response (peaked at ~$9 trillion)
2022-present: Quantitative tightening (QT) — shrinking balance sheet

Component 2: Treasury General Account (TGA)

What it is: The U.S. Treasury's "checking account" held at the Federal Reserve.

Why we subtract it: Money sitting in the TGA is not in circulation. When the Treasury builds up its cash balance (e.g., after tax receipts or debt issuance), that money is pulled from the banking system—reducing available liquidity.

FRED series: WDTGAL (Treasury General Account) Frequency: Weekly Units: Millions of dollars

How TGA Affects Markets

Treasury Action	TGA Effect	Liquidity Effect
Issues debt (bills, bonds)	TGA increases	Liquidity decreases
Spends money (stimulus, payments)	TGA decreases	Liquidity increases
Receives taxes	TGA increases	Liquidity decreases

Example: In 2020-2021, the Treasury spent down its TGA from ~$1.8 trillion to ~$60 billion. That $1.7+ trillion flowed into the financial system—a major liquidity injection separate from the Fed's QE.

Component 3: Reverse Repo Facility (RRP)

What it is: An overnight facility where money market funds and other counterparties can "park" cash at the Fed in exchange for Treasury securities.

Why we subtract it: Money in the RRP is not being deployed in markets—it's sitting idle at the Fed. When RRP usage rises, that money is effectively removed from circulation.

FRED series: RRPONTSYD (Overnight Reverse Repurchase Agreements) Frequency: Daily Units: Billions of dollars

The RRP Story (2021-2024)

The RRP usage exploded in 2021-2022:

Pre-2021: Negligible usage
Peak (2022-2023): ~$2.5 trillion parked in RRP
2024: RRP draining as Treasury bill issuance pulled funds out

Money leaving the RRP flows back into markets (liquidity positive). Money entering RRP is removed from markets (liquidity negative).

Putting It Together

Net Liquidity = Fed Balance Sheet − Idle Cash (TGA + RRP)

It's an attempt to measure "spendable" liquidity—how much of the Fed's asset base is actually available to markets rather than locked up in government accounts.

Current Example

As of late 2024 (hypothetical numbers for illustration):

Component	Value	FRED Series
Fed Assets	$7.0 trillion	WALCL
− TGA	$0.8 trillion	WDTGAL
− RRP	$0.3 trillion	RRPONTSYD
= Net Liquidity	$5.9 trillion

What Net Liquidity Does Tell You

Directional changes matter more than levels — A rising net liquidity line suggests improving conditions; a falling line suggests tightening.
It captures "hidden" liquidity operations — Treasury General Account (TGA) and Reverse Repo (RRP) moves often fly under the radar but can be larger than official quantitative easing/tightening in terms of market impact.
It correlates with risk assets over medium-term horizons — VantMacro tracks a 90-day rolling correlation between net liquidity and the S&P 500.
It can show strong in-sample relationships with price levels — In a simple log-level regression test, US net liquidity explains ~68% of NASDAQ price variance over 2003–2025 (but the relationship is much weaker in year-over-year change form and does not prove causality).

What Net Liquidity Doesn't Tell You

1. Timing Is Imprecise

Liquidity-market correlations work over months to quarters, not days. Don't expect net liquidity to predict tomorrow's price action.

2. It's One Factor Among Many

Earnings, valuations, positioning, and sentiment all matter. Net liquidity provides backdrop; it doesn't override everything else.

3. The Formula Is Simplified

The "Fed − TGA − RRP" formula is a useful approximation, but:

It ignores credit creation in the private sector
It doesn't capture global liquidity dynamics
It doesn't account for velocity (how fast money moves)

4. Past Correlations May Not Persist

The net liquidity → risk asset relationship has been strong in the post-2008 QE era. Whether it remains as predictive in the future is unknown.

Net Liquidity vs Global Liquidity

Net Liquidity focuses on the U.S. Federal Reserve and related accounts. It's a narrow, precise metric.

Global Liquidity aggregates contributions from multiple central banks (Fed, European Central Bank, Bank of Japan, People's Bank of China, Bank of England). It's broader but requires weighting assumptions.

VantMacro uses both:

Net Liquidity as the primary U.S. measure (45% weight in global composite)
Global Liquidity Pulse for the full picture across regions

Learn more: The Complete Guide to Global Liquidity →

How to Track Net Liquidity

For detailed step-by-step instructions including spreadsheet formulas and common mistakes to avoid, see How to Track Global Liquidity: Step-by-Step Guide →

DIY with FRED

Go to FRED
Download these series:
- WALCL (Fed Assets, weekly, millions)
- WDTGAL (TGA, weekly, millions)
- RRPONTSYD (RRP, daily, billions—convert to millions)
Align dates (RRP is daily; interpolate or take last-of-week values)
Calculate: Net Liquidity = WALCL − WDTGAL − (RRPONTSYD × 1000)

VantMacro Dashboard

VantMacro calculates net liquidity automatically and displays it alongside:

Year-over-year change (the more important metric)
Correlation with S&P 500
Global liquidity context

View Liquidity Dashboard →

Common Questions

"Why not just watch the Fed balance sheet?"

Because the balance sheet alone misses important dynamics:

The Treasury can drain liquidity by building TGA (even if the Fed does nothing)
Money market funds can remove liquidity by parking cash in RRP (even if the Fed does nothing)

Net liquidity captures these effects.

"Is net liquidity a leading indicator?"

Sometimes. It has historically led risk asset moves by 3-6 months in some periods, but the lag is inconsistent. Use it as context, not a timing tool.

"What's a 'good' level of net liquidity?"

There's no absolute "good" level. What matters is the direction and rate of change:

Rising net liquidity = supportive backdrop for risk assets
Falling net liquidity = headwind for risk assets

"Does net liquidity explain all market moves?"

No. It's one input among many. VantMacro's research found that liquidity factors explain significant variance in equity returns, but earnings, valuations, and sentiment matter too.

Summary

Component	FRED Series	Effect on Net Liquidity
Fed Balance Sheet	WALCL	↑ Fed Assets → ↑ Liquidity
Treasury General Account	WDTGAL	↑ TGA → ↓ Liquidity
Reverse Repo Facility	RRPONTSYD	↑ RRP → ↓ Liquidity

Net Liquidity = WALCL − WDTGAL − RRPONTSYD

It's a useful approximation of how much Fed liquidity is actually reaching markets—but always use it in context with other indicators.

Data Sources

FRED series: Fed Total Assets (WALCL) — https://fred.stlouisfed.org/series/WALCL
FRED series: Treasury General Account (WDTGAL) — https://fred.stlouisfed.org/series/WDTGAL
FRED series: Overnight Reverse Repo (RRPONTSYD) — https://fred.stlouisfed.org/series/RRPONTSYD

Methodology

Computes “US net liquidity” as WALCL − WDTGAL − RRPONTSYD (weekly series), matching the definition used in VantMacro’s Liquidity views.
Interprets the metric primarily via direction and rate-of-change (levels can trend for long periods).
Uses the series as a macro backdrop input (often with a lag), not as a standalone signal.

Limitations

“Net liquidity” is a useful approximation, not a complete measure of financial conditions (it omits credit creation, private leverage, and global liquidity flows).
Institutional plumbing changes (e.g., RRP usage regimes, TGA management) can shift how the metric maps to markets over time.
Correlation with risk assets varies materially by sample window and market regime.

Track Net Liquidity on VantMacro

Real-time calculation with YoY change
Correlation analysis with S&P 500
Integration with global liquidity pulse

Explore the Liquidity Dashboard →

What is Net Liquidity?

What You'll Learn