Market liquidity has fallen by $150 billion since Congress suspended the debt ceiling earlier this month, according to institutional brokerage and advisory firm Strategas.
But the money to buy those T-bills comes out of financial markets, and Strategas said the Fed's reverse repurchase program — which acts like short-term loans — isn't offsetting the loss of liquidity from the auctions. He said that a major liquidity drain could reverse the outperformance of long-duration stocks, such as technology and communication companies, while those focused on building things could see improved performance.Draining liquidity from the system could also lead to more bank failures, he warned, adding that he expects that risk will eventually pressure the Fed to slow down its quantitative tightening.