Honestly, I’m a bit confused by the Fed’s recent combination of moves.

The 10-year US Treasury yield has surged to 4.14%. With borrowing costs that high, both businesses and individuals have to tighten their belts. But at the same time, PIMCO’s Kelly came out swinging: “I don’t get why the Fed is frantically expanding its balance sheet, but being stingy with rate cuts. If it were up to me, I’d do the opposite.”

At first glance, it does seem contradictory. But if you think about it, maybe this is the Fed’s real dilemma:

Let’s start with appearances. Inflation hasn’t completely cooled off yet, so cutting rates openly would be like admitting defeat. But the financial system can’t actually be starved of liquidity—if liquidity dries up and triggers a chain reaction collapse, things would get messy. So, they’re talking tough (“hawkish”) while quietly injecting cash into the market.

Now, look at how the market’s reacting. Long-term rates just won’t come down, which suggests that smart money doesn’t buy the fairy tale of “massive liquidity coming soon.” They’re voting with real money: high rates could stick around longer than expected.

What does this mean for regular people? Don’t count on a return to the days of zero interest rates and easy money. With these funding costs, all kinds of asset valuations will keep getting squeezed. On the other hand, liquidity is quietly increasing... So where will that money end up?

Right now, things are pretty delicate: it’s neither a bottomless bear market nor an all-out bull signal. It’s more like a stress test—the market is searching for a new balance between tight borrowing costs and potential easing expectations.

What do you think? Is the Fed making a big strategic move, or have they been backed into a corner?