Liquidity
Liquidity is the ability to buy or sell an asset quickly at a fair price. In calm times it's invisible — trades clear instantly. In stress it evaporates: bid-ask spreads explode, 'risk-free' Treasuries gap, and selling pressure feeds on itself because there's no one to sell to.
Why recessions involve it
Credit stress is liquidity stress: widening spreads partly reflect not default expectations but the disappearing market for risky assets. The March 2020 episode showed the extreme — even Treasuries briefly lost liquidity, forcing Fed intervention not because of solvency but because the plumbing froze.
Where it shows up in the panel
Liquidity conditions flow into the NFCI and STLFSI components — volatility, spreads, funding-market stress are all partially liquidity measures. There's no single liquidity gauge in the panel because liquidity is a *state of the market*, visible through its symptoms rather than a headline number.