Macro report · Chapter 05 of 10

Liquidity

Flat-to-draining; a policy-forced turn approaching.

Fed balance sheet (WALCL): $6.725T, +0.5% YoY, +$10.9B over six months — essentially flat; QT has stalled near neutral.

• M2: $23.05T, +5.6% YoY, +$775B over six months — broad money is GROWING again, feeding nominal spending and the inflation impulse.
• Bank reserves (WRESBAL): $2.967T, -4.8% YoY, -$162.7B over six months — reserves are DRAINING.
• Reverse repo (RRPONTSYD): $2.17B — effectively empty (the QT shock-absorber is gone).

Meaning: The RRP buffer is exhausted and reserves are falling — plumbing is tightening even as the balance sheet holds flat. But M2 +5.6% is the louder signal: broad liquidity is re-expanding, fuel for reflation. Per Visser, liquidity expands ~10%/yr and markets need it (jordi_visser-g2AfJP3wuB0:88806c4f8d). An empty RRP + draining reserves is the historical setup that forces the Fed to STOP QT and add liquidity — a regime-reinforcing, inflationary pivot. Section 3 quantifies how large that injection may be.