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EndGame Macro
H.4.1 Signals: Late Cycle Liquidity, Calm on the Surface, Tightening Underneath
Total Fed assets now sit at $6.58 trillion, up $24.4 billion week over week, but still down about $305 billion from a year ago. QT hasn’t reversed outright, but it has clearly changed character.
The most important shift is where the Fed is holding assets…
• Treasuries: $4.23T, up $23.4B WoW, but down $81B YoY
• Mortgage backed securities: $2.05T, down $2.9B WoW and nearly $195B YoY
QT is no longer about shrinking the balance sheet aggressively. It’s about reshaping it. The Fed is quietly moving toward shorter duration Treasuries while letting MBS continue to roll off.
That matters more than the headline balance sheet number.
A Quiet but Important Detail: Bills Are Doing the Work
Almost the entire weekly increase in Treasuries came from T-bills, which rose $23.1B in a single week. Notes and bonds didn’t change at all.
This isn’t random. Bills…
• Carry less duration risk
• Reprice faster at higher rates
• Generate income more quickly
In plain English the Fed is managing interest rate risk and cash flow, not easing financial conditions.
Liquidity Is Still There But the Shock Absorber Is Gone
Reserve balances ended the week at $2.96T, down $3.5B WoW and down nearly $292B from a year ago.
On its own, that weekly move is small. The issue is what’s no longer there to cushion future drains.
Reverse repos the old pressure release valve have collapsed…
• Total RRP: $327B, down $184B YoY
• Of that, $322B belongs to foreign official accounts
• Only $4.7B remains in domestic “other” usage
That means the domestic ON RRP facility is effectively empty.
So going forward…
• Treasury cash builds
• Currency demand spikes
• Deposits shift
…and those pressures hit reserves directly, with much less buffer than in 2022–2023.
This doesn’t cause stress by itself. It raises sensitivity.
Discount Window Use: Not a Crisis, But Not Nothing
Total Fed loans are still small $9.2B but context matters…
• Loans are up $301M WoW
• Up $6.9B year over year
• Nearly all of it is primary credit (discount window)
That’s not panic level borrowing. But it is a sign that some institutions are choosing the Fed over private markets at the margin.
Historically, the signal isn’t the level, it’s persistence. If this fades after year end, it’s noise. If it keeps climbing, it becomes information.
Liquidity Swaps: A Flicker, Not a Fire
Central bank dollar swaps rose to $481M, up $392M WoW.
In absolute terms, this is tiny. In directional terms, it’s worth logging.
When swaps move off zero, it usually reflects localized offshore dollar tightness, not global stress. This is a watch item, not a warning siren.
The Accounting Reality Everyone Ignores
Buried in the liabilities is a line most people wave away…
Earnings remittances due to the U.S. Treasury: –$242.1B
That negative number is the Fed’s deferred asset, the accumulated shortfall from paying high interest on reserves while holding a low coupon bond portfolio.
This doesn’t impair the Fed’s ability to operate. But it does tell you…
• High rates are expensive
• Time matters
• The Fed is incentivized to manage income carefully
That helps explain the shift toward bills and balance sheet stabilization.
So What’s the Actual Risk Signal?
Several things narrow the margin for error…
• Reserves are lower YoY and more exposed
• The ON RRP buffer is gone
• Discount window usage is rising modestly
• Liquidity management is becoming more deliberate, not looser
At the same time…
• The yield curve is positive
• Emergency facilities are quiet
• Asset composition remains conservative
This is late cycle balance sheet behavior, not crisis behavior.
Bottom Line
Recession risk implied by the balance sheet alone will be very dependent on how labor, Treasury issuance, and funding markets evolve from here.
Interactive guide to our weekly #Balanc[...]
H.4.1 Signals: Late Cycle Liquidity, Calm on the Surface, Tightening Underneath
Total Fed assets now sit at $6.58 trillion, up $24.4 billion week over week, but still down about $305 billion from a year ago. QT hasn’t reversed outright, but it has clearly changed character.
The most important shift is where the Fed is holding assets…
• Treasuries: $4.23T, up $23.4B WoW, but down $81B YoY
• Mortgage backed securities: $2.05T, down $2.9B WoW and nearly $195B YoY
QT is no longer about shrinking the balance sheet aggressively. It’s about reshaping it. The Fed is quietly moving toward shorter duration Treasuries while letting MBS continue to roll off.
That matters more than the headline balance sheet number.
A Quiet but Important Detail: Bills Are Doing the Work
Almost the entire weekly increase in Treasuries came from T-bills, which rose $23.1B in a single week. Notes and bonds didn’t change at all.
This isn’t random. Bills…
• Carry less duration risk
• Reprice faster at higher rates
• Generate income more quickly
In plain English the Fed is managing interest rate risk and cash flow, not easing financial conditions.
Liquidity Is Still There But the Shock Absorber Is Gone
Reserve balances ended the week at $2.96T, down $3.5B WoW and down nearly $292B from a year ago.
On its own, that weekly move is small. The issue is what’s no longer there to cushion future drains.
Reverse repos the old pressure release valve have collapsed…
• Total RRP: $327B, down $184B YoY
• Of that, $322B belongs to foreign official accounts
• Only $4.7B remains in domestic “other” usage
That means the domestic ON RRP facility is effectively empty.
So going forward…
• Treasury cash builds
• Currency demand spikes
• Deposits shift
…and those pressures hit reserves directly, with much less buffer than in 2022–2023.
This doesn’t cause stress by itself. It raises sensitivity.
Discount Window Use: Not a Crisis, But Not Nothing
Total Fed loans are still small $9.2B but context matters…
• Loans are up $301M WoW
• Up $6.9B year over year
• Nearly all of it is primary credit (discount window)
That’s not panic level borrowing. But it is a sign that some institutions are choosing the Fed over private markets at the margin.
Historically, the signal isn’t the level, it’s persistence. If this fades after year end, it’s noise. If it keeps climbing, it becomes information.
Liquidity Swaps: A Flicker, Not a Fire
Central bank dollar swaps rose to $481M, up $392M WoW.
In absolute terms, this is tiny. In directional terms, it’s worth logging.
When swaps move off zero, it usually reflects localized offshore dollar tightness, not global stress. This is a watch item, not a warning siren.
The Accounting Reality Everyone Ignores
Buried in the liabilities is a line most people wave away…
Earnings remittances due to the U.S. Treasury: –$242.1B
That negative number is the Fed’s deferred asset, the accumulated shortfall from paying high interest on reserves while holding a low coupon bond portfolio.
This doesn’t impair the Fed’s ability to operate. But it does tell you…
• High rates are expensive
• Time matters
• The Fed is incentivized to manage income carefully
That helps explain the shift toward bills and balance sheet stabilization.
So What’s the Actual Risk Signal?
Several things narrow the margin for error…
• Reserves are lower YoY and more exposed
• The ON RRP buffer is gone
• Discount window usage is rising modestly
• Liquidity management is becoming more deliberate, not looser
At the same time…
• The yield curve is positive
• Emergency facilities are quiet
• Asset composition remains conservative
This is late cycle balance sheet behavior, not crisis behavior.
Bottom Line
Recession risk implied by the balance sheet alone will be very dependent on how labor, Treasury issuance, and funding markets evolve from here.
Interactive guide to our weekly #Balanc[...]