Part 9/11:
The recent escalation suggests a fragile system where risk aversion can rapidly escalate into liquidity shortages. The market’s behavior aligns with concerns about macroeconomic slowdown, rising recession fears, and deteriorating credit conditions—particularly in shadow banking sectors.
The Fed’s own actions—accelerating the end of QT and observing rising rates—point to worries that the current stability may be ephemeral. These measures, however, are largely reactive, and the central bank’s tools seem insufficient to allay market fears fully.
Looking Ahead: What Should Investors and Policymakers Watch?
Given the current landscape, several key questions emerge:
- Will the surge in repo usage and market volatility continue into next week?