The Fed will not lose to inflation - it will keep raising its target rate until it gets ahead of perceived inflation - and at the margin something will break.
The doom-sayers' bet is, somewhere, sometime soon, a major institution will not be able to roll over its short-term borrowing line and will become "frozen." Looking back we will call that a "crisis."
Will it be Ford? Fannie Mae or Freddie Mac? A private mortgage lender? An insurer or re-insurer unable to settle claims after the next natural disaster? Gasoline at $4.00 in the Midwest?
Will some emerging nation nationalize energy or basic materials industry or default on external debt? Hedge funds chain-fail? Consumer mortgage borrowers who have some sort of floating rate loan or who have borrowed all the available equity against an unrealistic appraisal declare bankruptcy? Who knows?
The world will go on. Markets will recover. But ill-prepared investors and over-leveraged borrowers will make bad decisions out of fear and desperation. Better to be safer and more liquid and have nothing happen than to be on the wrong side of an overly aggressive portfolio.
Hilarious!!
Looking back we will call that a "crisis."
It's nice to be able to look at a crisis and blame a Fed tightening cycle. Not always correct, but nice. And funny! Like I said in post #57.