Track 05Module 1 of 613 sources
Money, the Fed and liquidity plumbing
Explain how central banks set the price and quantity of money, and how to track liquidity week to week.
Key ideas
- The Fed controls short-term rates through the interest it pays on reserves and on its reverse repo facility. The balance sheet is a second, slower lever.
- A useful liquidity gauge is the Fed balance sheet minus the Treasury's cash account minus reverse repo balances. Rising means more cash in the system.
- Financial conditions matter more than the policy rate alone. Spreads, the dollar and equity prices can loosen or tighten policy on their own.
- Most money is created by banks and markets, not by the central bank. Repo is where it shows stress first.
Start hereWatch or read these first. They carry the core idea.
How The Economic Machine Works by Ray Dalio
Video · Principles by Ray Dalio · 31:00
Credit, debt cycles and deleveraging in thirty minutes. A good frame even where you disagree with it.
How the Fed Steers Interest Rates to Guide the Entire Economy | WSJ
Video · The Wall Street Journal · 5:19
How the Fed actually moves interest rates.
Repos Explained (and Why The Fed Uses Them)
Video · The Plain Bagel · 10:02
Repo explained, and why it is the core of the money market.
Report
The Fed Explained: Monetary Policy
Federal Reserve
The Fed's own account of how policy is set and transmitted.
Data
CoreThe standard references. Work through them once the idea is clear.
Book
Central Banking 101
Joseph J Wang
The clearest book on how the Fed, banks and money markets fit together, by a former Fed trader.
Newsletter
Fed Guy: Joseph Wang on money markets and the Fed
Fed Guy
The same author's running commentary on liquidity.
Data
National Financial Conditions Index
Chicago Fed
One weekly number for US financial conditions. Below zero is loose.
Data
Markets Data Dashboard: repo, reserves, SOFR
New York Fed
Reserves, repo rates and facility usage, direct from the source.
When Will The Fed Slow Down? (Not Now.) | Nick Timiraos & Joseph Wang
Video · Forward Guidance · 1:01:07
A Fed reporter and a former Fed trader discuss how policy decisions are really made.
Go deeperResearch, primary sources and data for when you want the detail.
Course
Economics of Money and Banking (Perry Mehrling)
Coursera, Columbia
A full university course on the money view. The deepest free treatment.
Newsletter
Book
Principles for Navigating Big Debt Crises
Ray Dalio
A template for how debt crises unfold, with historical cases.
Practice
Once a week, note the Fed's net liquidity and the NFCI from the Macro page, then the week's change in the S&P 500 and bitcoin. After two months, see what led what.
See it live
Where this leads
05.2 · Macro and LiquidityRates, the yield curve and what bonds are sayingRead the level and shape of the curve, split yields into real rate and inflation expectation, and track what the market expects from the Fed.05.3 · Macro and LiquidityThe dollar, carry and the global financial cycleExplain why a strong dollar tightens conditions everywhere, and how carry trades build and unwind.