Global Liquidity Cycle Interpretation: Where Are We Now? Summary of 12 Core Indicators

This article delves into the four stages of the global liquidity cycle, analyzing how we are currently tentatively moving from a tightening steady state towards an initial loosening phase, and provides key monitoring signals. This article is based on a piece by hoeem, compiled, edited, and written by Foresight News. (Background: The hidden agenda of U.S. stock tokenization: siphoning "global liquidity" with "regulatory dividends") (Context: July's interest rate cut probability approaches zero! U.S. June non-farm employment is exceptionally strong, U.S. stocks soar, Bitcoin surpasses $110,000.) Wealth that is passed down through generations often emerges during the transition from a tightening cycle to a loosening phase. Therefore, clearly understanding one’s position in the liquidity cycle is key to accurately positioning assets. Which stage are we currently in? Let me explain in detail... Why you must follow the liquidity cycle ( Even if you hate macroeconomics ), Central Bank liquidity is like the lubricant for the global economic engine: Injecting too much will cause the market to "overheat"; excessive withdrawal will lead to "piston seizing," just like a carefully dressed date suddenly leaving you. The point is: if you can keep up with the rhythm of liquidity, you can anticipate bubbles and crashes in advance. The four stages of liquidity from 2020 to 2025: 1. Surge Stage ( 2020-2021 ) Central Banks acted like fire hoses running at full power, injecting water madly: zero interest rates implemented, quantitative easing ( QE) reached historic scales, with $16 trillion in fiscal relief poured into the market. Contextually, the global money supply ( M2) grew faster than any period since World War II. 2. Exhaustion Stage ( 2021-2022 ) Interest rates surged by 500 basis points, and quantitative tightening ( QT) was initiated, with crisis relief programs expiring. Intuitively, the bond market in 2022 saw the largest decline in history ( of about -17% ). 3. Steady Stage ( 2022-2024 ) Policies remain tight, with no new actions. Decision-makers maintain existing policies to fully exert their effect in suppressing inflation. 4. Initial Transition Stage ( 2024-2025 ) The world begins to cut interest rates and loosen restrictions; although interest rates remain relatively high, a downward trend has begun. Mid-2025 current status: We still have one foot in the steady stage, while the other tentatively steps toward the first step of the initial transition stage. Current interest rates are high, quantitative tightening continues, but unless new shocks pull us back into a surge mode, the next step will likely continue to loosen. More details can be found in the "Traffic Signal Quick Reference Manual" below... Yes, I got GPT to help make a super cool table! The table below will let you see at a glance the situations in the key years 2017, 2021, and 2025: Twelve Major Liquidity Leverage Traffic Signal Quick Reference Manual Not Activated  Mildly Activated  Strongly Activated What is the main switch that can activate the other 11 levers? Gradual Breakdown Regarding interest rate cuts—In 2017, the Federal Reserve raised rates, and there was almost no loosening policy globally; in 2021, global emergency rate cuts approached zero; by 2025, to maintain credibility against inflation, rates will remain high, but the U.S. and core European countries plan to implement slight rate cuts for the first time by the end of 2025. Quantitative Easing / Tightening ( QE/QT) —In 2017, the Federal Reserve was reducing its balance sheet while other major central banks were still buying bonds; from 2020 to 2021, record-breaking quantitative easing policies were launched globally; by 2025, the policy stance reverses, with the Federal Reserve continuing to implement quantitative tightening, the Bank of Japan still purchasing bonds without limits, while China injects liquidity selectively. In simple terms: quantitative easing is like "blood transfusion" for the economy, while quantitative tightening is "slowly drawing blood." You need to know when we will enter the quantitative tightening or quantitative easing phase and which position we are currently in the liquidity cycle... Mid-2025 Current Status Dashboard Regarding interest rate cuts: Policy rates remain high; if progress goes smoothly, the first rate cut could occur in the fourth quarter of 2025. Quantitative Easing / Tightening ( QE/QT): Quantitative tightening ( QT) is still ongoing, with no new quantitative easing ( QE) policies introduced yet, but early signs of stimulus have appeared. Key Signals to Watch Signal 1: Inflation rate drops to 2% and policymakers declare risk balance. Observational Points: The Federal Reserve or the European Central Bank may make clear statements shifting towards neutral language. Key Significance: Clears the last public opinion hurdle for interest rate cuts. Signal 2: Quantitative tightening ( QT) pauses ( with limits set at 0 or 100% reinvestment ) Observational Points: The Federal Open Market Committee ( FOMC) or the European Central Bank announces full reinvestment of maturing bonds. Key Significance: Transitions the balance sheet reduction to a neutral state, increasing market liquidity reserves. Signal 3: Three-month forward rate agreements and overnight index swap spreads ( FRA-OIS) exceeding 25 basis points or repo rates suddenly soaring. Observational Points: The three-month FRA-OIS spread ( Note: Forward Rate Agreement ( FRA) rates versus overnight index swap ( OIS) rates is an important indicator of financial market credit and liquidity risks. ) or general collateral ( GC) repo rates jump to around 25 basis points. Key Significance: Indicates pressure on dollar financing, which usually forces the central bank to provide liquidity support. Signal 4: The People's Bank of China ( PBoC) comprehensively cuts the reserve requirement ratio ( RRR) by 25 basis points. Observational Points: The national reserve requirement ratio drops below 6.35%. Key Significance: Injects 400 billion yuan of base currency, often becoming the first domino in the loosening policies of emerging markets. In summary... We have not yet reached the surge stage. Therefore, before a large amount of leverage turns green, the market will continue to experience fluctuations in risk appetite and will not truly enter a frenzy stage. Related Reports U.S. Treasury Secretary Basent: The Federal Reserve will definitely cut rates in September! Trump’s tariffs did not worsen inflation. The hidden agenda of U.S. stock tokenization: siphoning "global liquidity" with "regulatory dividends" a16z report: The liquidity, sovereignty, and credit challenges behind the rise of stablecoins <Interpretation of the Global Liquidity Cycle: Where Are We Now? Summary of 12 Core Indicators> This article was originally published in BlockTempo, "Block Trends — The Most Influential Blockchain News Media."