Part 3/9:
The management of the Fed’s balance sheet plays a crucial role in this landscape. When the Fed allows its balance sheet to decrease, it effectively withdraws liquidity from the market—leading to rising interest rates, which have spiked from historically low levels in recent years. For example, the yield on the 10-year Treasury surged from 3.88% to 4.58% within a mere few days, suggesting that liquidity is dwindling and highlighting cracks in the financial system.