Liquidity has been a primary driver of financial asset returns over the past several years. Liquidity-driven markets are not unusual, but the breadth of speculative activity resulting from the Fed’s generosity since the pandemic began seems unprecedented. Expensive equity valuations, historically tight credit spreads, individuals’ increased use of investment leverage, and the ongoing bubble in numerous cryptocurrencies all seem to reflect excess liquidity leading to widespread speculation.
WTF: Watch the Fed
September 30, 2025