U.S. LIQUIDITY RESEARCH
Three-Layer Dollar Liquidity Framework
Separate the current liquidity impulse, structural fragility and market transmission before drawing an investment conclusion.
Current state
Liquidity impulse
Are balance-sheet, Treasury and credit flows adding or draining dollars?Structural fragility
System cushion
Can reserves and funding markets absorb the next liquidity drain?Market transmission
Asset response
Have credit and cross-asset prices confirmed the impulse?A single composite score cannot answer every liquidity question. The three-layer framework separates the current dollar-liquidity impulse, the system's capacity to absorb the next shock and the way asset markets are responding. Agreement across the layers strengthens a regime reading; disagreement is information rather than noise.
Layer one is current state. It asks whether Federal Reserve balance-sheet changes, Treasury cash flows, reverse-repo balances and bank-credit creation are adding or draining liquidity. QLI and the classic net-liquidity series belong here, but their levels, changes and publication lags must not be confused.
Layer two is structural fragility. Reserve buffers, SOFR–IORB, secured-funding tails and emergency-facility usage indicate whether the system can absorb another drain. A calm current flow can coexist with a thin cushion, so fragility should remain a separate axis instead of being hidden inside an average.
Layer three is market transmission. Credit spreads, the broad dollar, equities, rates, gold and Bitcoin show whether the liquidity impulse is being transmitted into prices. These variables are useful confirmation and validation evidence, but using them to define liquidity can introduce circularity because market prices already contain the outcome being studied.
The current production formula remains 0.60 × QLI plus 0.40 × FLI. This page is an interpretation architecture and a roadmap for future model comparison, not a claim that the production formula has already changed.
MACRO TRADER LENS
How a macro trader can use this research
Read the dashboard in sequence: state first, fragility second, transmission last. Agreement supports conviction; disagreement tells you to narrow the trade, shorten the horizon or wait.
Form the directional hypothesis
Use QLI, classic net liquidity and their rates of change to decide whether the system is receiving or losing a quantity impulse.
Size for the system cushion
Use reserves, SOFR–IORB, funding tails and facility usage to judge whether an apparently calm regime can absorb the next drain.
Let markets confirm
Credit, the dollar and target-asset trends show whether the impulse is reaching prices. Confirmation can raise confidence, but should not be confused with the original liquidity cause.
Write the conflict rule
If the three layers disagree, reduce size or express the view through relative value. Exit the hypothesis when the opposing layer persists beyond the chosen holding horizon.
Built from traceable sources
Federal Reserve and FRED series, New York Fed funding data, U.S. Treasury cash balances and cross-asset market prices.
Research information only — not investment advice.