- QT ends Dec 1, stabilizing liquidity as the Fed balance sheet slows its reductions.
- Reverse repo has drained to near zero, changing focus to the TGA as the next major liquidity driver.
- Manufacturing’s 26-month contraction contrasts with market sentiment, despite net liquidity flattening.
A detailed macro review by Dan Gambardello, challenged the rising claims of an incoming bear market. He examined Federal Reserve liquidity data, reverse repo levels and manufacturing indicators. He stated that price action alone created confusion while the broader liquidity picture showed a different setup forming.
Liquidity Components Shift as QT Ends
Gambardello noted that quantitative tightening ends on December 1, which slows the drain on liquidity. He added that the Fed balance sheet remains central to the net liquidity formula since any slowdown in reductions stabilizes conditions.
This point led into additional liquidity sources that influence risk assets. He explained that the Treasury General Account currently sits at elevated levels. The account acts as the government’s cash position at the Federal Reserve.
When the balance falls, spending flows back into the economy and increases liquidity. However, he stressed that the TGA cannot remain high indefinitely, which places attention on future drawdowns.
Reverse Repo Drain and Liquidity Buffer
Gambardello also addressed the sharp decline in the reverse repo facility. The tool dropped from roughly $2.5 trillion to almost zero between 2022 and 2024. He said this shift returned excess cash to the market and offset the effects of quantitative tightening. However, he emphasized that the drain happened once and cannot repeat in the same form.
That observation connected to his broader point that the next major liquidity change must come from the TGA. He described reverse repo as a temporary buffer that already served its role during the tightening cycle.
Manufacturing Contraction and Liquidity Levels
The analysis highlighted that U.S. manufacturing has contracted for 26 consecutive months, the longest streak on record. He linked this to the Fed Net Liquidity Indicator, which combines the balance sheet, TGA, and reverse repo data into one measure.
The indicator began flattening as these components shifted. Gambardello reported that many market reactions appeared based on volatility rather than macro data, which created disagreement between sentiment and liquidity trends.
