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The Other Doomsday Scenario Looming Over Markets

One U.K.-based fund manager is concerned that the Federal Reserve’s quantitative tightening would drain liquidity from the market—just as higher rates and falling stock and bond prices boost the need for cash.Photo: Michael M. Santiago/Getty Images

Think inflation is the biggest threat to your investments? Perhaps not: One fund manager that successfully navigated the past two major stock crashes is bracing for an awful end to the year because it fears the Federal Reserve’s quiet exit from bonds.

London-based Ruffer LLP is concerned that the accelerating runoff of the Fed’s Treasury holdings will suck liquidity out of the markets—just as rising rates and falling stock and bond prices increase the need for cash to smooth the drop.

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