The Fed's balance sheet is the foundation of US dollar liquidity. Understanding its mechanics lets you calculate Fed Net Liquidity (FED_NET_LIQUIDITY) — the true fuel gauge for markets.

Assets Side (What the Fed Owns):

• Treasuries: US government bonds (~$5 trillion)
• MBS: Mortgage-backed securities (~$2.5 trillion)
• Loans and Facilities: Emergency lending programs

When the Fed buys assets (QE), it creates new reserves. When assets mature or are sold (QT), reserves shrink.

Liabilities Side (What the Fed Owes):

• Bank Reserves: Banks' deposits at the Fed (the 'money' banks can lend)
• Currency: Physical cash in circulation
• RRP (RRPONTSYD): Reverse repo — cash parked at the Fed overnight
• TGA (WTREGEN): Treasury's checking account at the Fed

The Fed Net Liquidity (FED_NET_LIQUIDITY) Formula:

Fed Net Liquidity (FED_NET_LIQUIDITY) = Fed Total Assets (WALCL) − TGA (WTREGEN) − RRP (RRPONTSYD)

This formula tells you: How much liquidity is actually available to markets?

• WALCL is the raw balance sheet (what Fed has created)
• TGA (WTREGEN) is cash locked in Treasury's account (unavailable to economy)
• RRP (RRPONTSYD) is cash parked at Fed (not circulating)

Why This Formula Matters:

The headline Fed balance sheet (WALCL) can be misleading. If WALCL is $8 trillion but TGA (WTREGEN) is $800B and RRP (RRPONTSYD) is $2T, only ~$5.2T is actually circulating. Net Liquidity is what moves markets, not WALCL alone.