In the past decade, the phrase “liquidity trap” has often been tossed around in western markets. For central banks have provided so much funding for the financial system, via quantitative easing, that it seems that the glut was becoming ineffective.
This week, however, investors would be wise to ponder another concept: a “liquidity hole” — or, perhaps more accurately, holes.
For while the US Federal Reserve did not actually raise rates this week, Jay Powell, Fed chair, essentially promised that rate hikes will start in March. More significant still, the Fed also issued a weighty document pledging to shrink its balance sheet too.
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