Interest rates are the price of money. Raise the price and liquidity tightens — reliably, every time, regardless of what anyone would prefer.
Given the volatility of recent weeks and the general absence of predictability, it seemed worth setting out plainly how we are reading the situation — for clients and for anyone else interested in our view.
What Is Actually Happening
The Federal Reserve has raised rates. That single action tightens liquidity across the system — money becomes more expensive to borrow, less of it circulates, and every asset priced off cheap capital reprices accordingly. This is not a market malfunction. It is the mechanism working as designed.
What compounds the volatility is a second realisation now settling across the market: with inflation elevated, the Fed cannot do the thing investors have come to expect. Cutting rates to support falling equity prices would work directly against the objective it is currently pursuing.
For more than a decade, a sufficiently sharp decline brought support. Investors learned to position around that expectation, often without noticing they were doing it. The expectation is now unfounded — and much of the current volatility is the market unlearning it.
The consequence is a repricing not only of assets but of assumptions. Where the range of plausible outcomes shifts, so does the appropriate posture toward risk.
If you would like to discuss what any of this means for your own allocation specifically, rather than for markets in general, we're glad to have that conversation.
This note reflects our views at the time of writing and is not financial advice, nor a recommendation of any security or strategy. Positioning changes as conditions do. Investing involves risk, including the possible loss of principal.
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Volatility means something different depending on whether a portfolio is still accumulating or already funding withdrawals. We're happy to work through which applies to yours.
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