--- title: 'How to Decode FRED' category: economy tags: - economy published: true date: 2025-08-11 13:42:13 description: 'Sorts the Fed balance sheet into five FRED lines: reserves, TGA, reverse repo, securities, and loans. Reads each line rising or falling as liquidity added or drained.' --- The link below is a chart I made a while back on FRED to examine U.S. market liquidity, and I'm sharing it so we can all study it together. The U.S. Fed's balance sheet is a table showing the state of its assets and liabilities, and once you can read it even roughly, it's easy to grasp how much money is being released into the market, in other words the flow of market liquidity. 🔗 [FRED Graph](https://fred.stlouisfed.org/graph/?g=1rdfH&ref=wb3vb.io) ## **\[Blue\] 1. Liabilities and Capital: Reserve Balances with Federal Reserve Banks (Bank Reserves)** \- Cash that private commercial banks have deposited at the Fed - These are assets for the banks, but from the Fed's standpoint they can be seen as liabilities it must repay **- Chart rising:** Means banks' reserves are increasing, which can mean market liquidity is becoming more abundant **- Chart falling:** As the TGA/RRP balances below increase, banks' reserves decrease, leading to a contraction in liquidity ------------------------------------------------------------------------ ## **\[Red\] 2. Liabilities: U.S. Treasury, General Account (TGA, Treasury General Account)** \- This is like the U.S. government's (Treasury's) overdraft account inside the Fed. If that account hits '0,' it is a default (bankruptcy). The fuss about the U.S. going bankrupt comes from this - When the government collects taxes or issues Treasuries, this account's balance rises; when it spends fiscally, the balance falls **- Chart rising:** It scoops up the water (money) in the market to fill its own reservoir, producing a tightening effect that reduces liquidity **- Chart falling:** The government is executing various policies, and this money flows into the private sector, producing the effect of increasing market liquidity - The 2025 TGA chart has kept declining so far, meaning money has kept being released into the market - But the OBBB (the Big and Beautiful Bill) just passed, the debt ceiling was raised sharply (by $5 trillion), and the balance will have to be refilled before long. - Refilling the balance means market liquidity is about to be absorbed. It feels a bit like an annual event ------------------------------------------------------------------------ ## **\[Green\] 3. Liabilities: Reverse Repurchase Agreements (Reverse Repo)** \- Simply think of it as a facility where the Fed borrows money from financial institutions on an ultra-short-term basis (usually overnight). - It is the Fed's safeguard to temporarily absorb short-term funds and prevent rates from falling excessively below the benchmark rate - It feels like a 'temporary reservoir' that briefly holds water when the river overflows **- Chart rising:** Short-term funds in the market are rushing into this reservoir, so market liquidity decreases **- Chart falling:** The water in the reservoir flows back out into the main channel of the river, a signal that short-term liquidity is being supplied ------------------------------------------------------------------------ ## **\[Purple\] 4. Assets: Securities Held Outright (Securities Holdings)** \- Refers to the Treasuries, mortgage-backed securities (MBS), etc. that the Fed has purchased and holds The Fed runs its two most central policy tools, quantitative easing (QE) and quantitative tightening (QT), through this item. **- Chart rising:** The Fed buys bonds (QE) \> money is released into the market \> liquidity expands **- Chart falling:** The Fed sells bonds (QT) \> money is absorbed from the market \> liquidity tightens - Currently the U.S. is carrying out QT, and while it is scheduled to run until February next year (?), it is expected to last longer. - The news talks about tapering, which just means doing it gradually (for example, QT tapering, which means winding QT down bit by bit) - That is why the market cheers at even a mere signal that the Fed will end QT ------------------------------------------------------------------------ ## **\[Sky Blue\] 5. Assets: Liquidity and Credit Facilities: Loans (Loans)** \- A window that lends emergency funds to banks facing a liquidity crisis (e.g., the discount window, the Bank Term Funding Program (BTFP)) **- Chart rising**: It means liquidity is being supplied, but it also means there is systemic risk in the banks, so it is not a good thing **- Chart falling:** It means banks are repaying the money they borrowed from the Fed, and stress in the system is easing. These are not difficult concepts, so I think buckling down to learn them over a weekend will help a lot.