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Money Market FundsCurrent developments are not happening in isolation. There was a pre-existing economic reality that preceded the war, which also needs to be considered.
That reality stems from the initial central bank response to the pandemic and the subsequent liquidity-draining quantitative tightening.
Stated differently, the stimulatory effects of the Fed’s monetary approach were largely, if not completely, unwound, and that will have consequences for the underlying business cycle.
The logical implication is that if a ramp-up in liquidity will prop up the business cycle, the withdrawal of that same liquidity will undermine it.
The main point to take away from this is that the war with Iran and the oil price shock that followed couldn’t have happened at a worse time. If one were looking for a catalyst for trouble, the sharp rise in oil prices would certainly feature prominently.
