Zero interest rates and easy money credit provided by the Fed have been in large part what's gotten us into this mess. That market liquidity is being taken away now and as interest rates rise and QT is implemented that stresses EVERYTHING in risk assets. How much longer the System can handle it is the big question. IMO we're going to see them take it too far and break something. The money created from the pandemic was the catalyst for the big inflation rise.
As we now are seeing, about the best place to be is in short term U.S.treasuries and long the dollar, although the dollar's rise is probably getting somewhat long in the tooth, short term. The higher interest rates they're imposing now are going to be lagging in nature, so their effects won't be felt entirely until next year. I see us in a very bad recession next year.
Yes, liquidity risk was the same issues they had back in 2007-08 and it's of course what has all the bank CEO's/economists/market pundits very concerned about the train wreck coming if they choke off the liquidity. Most that I hear say the Fed will go too far and IMO they're right. Are they intentionally trying to crash the System? I don't think they want to take the blame for crashing it, but inadvertently they could do it anyway. They know they're painted into a corner.
When the next crisis comes they'll be forced to pivot and most likely start dropping rates again. The markets will reverse and go higher again until everyone figures out nothing has been fixed and the next crisis comes along.
