Learn how inflation, interest rates, and liquidity interact to drive financial markets.
Why You Need a Framework
Markets are not random. They are driven by a combination of macroeconomic forces
that interact in predictable ways.
Without a framework, investors react to noise. With a framework, they anticipate trends.
The 3 Core Drivers
- Inflation – Determines purchasing power and policy pressure
- Interest Rates – Controls cost of capital
- Liquidity – Drives asset prices
How the System Works
Inflation ↑ → Central Bank Tightening → Liquidity ↓ → Stocks ↓
Inflation ↓ → Policy Easing → Liquidity ↑ → Stocks ↑
This cycle repeats across different economic environments and forms the basis
of most market movements.
Market Cycle Phases
1. Expansion
Low rates, increasing liquidity, strong equity performance.
2. Peak
High inflation, tightening begins, volatility increases.
3. Contraction
High rates, declining growth, risk-off sentiment.
4. Recovery
Rate cuts begin, liquidity improves, markets rebound.
How to Apply This Framework
- Track CPI for inflation trends
- Monitor interest rate decisions
- Analyze liquidity conditions
The goal is to identify where we are in the cycle and adjust positioning accordingly.
Using MacroTerminal
MacroTerminal integrates these indicators into a single dashboard,
allowing users to quickly identify macro trends and turning points.
- View CPI, rates, and employment together
- Identify macro shifts early
- Make data-driven decisions
Conclusion
A strong macro framework transforms investing from reactive to strategic.
The market is not random—it follows macro structure.