As the Fed steps up its efforts to curb inflation, causing the dollar to soar and US bonds and stock markets to tumble, investors are increasingly worried that the Fed's actions will have unintended and potentially dire consequences.

After being criticized for being slow to understand inflation, the Fed began its most aggressive series of interest rate hikes since the 1980s. The fed has raised its benchmark interest rate from near zero in march to a target of at least 3 per cent.

"the Fed is breaking the rules," said Benjamin Dunn, a former chief risk officer for hedge funds who now runs Alpha Theory Advisors, a consultancy. "you really don't have anything to refer to history in today's market; we see multiple standard deviation fluctuations in currencies such as the Swedish krona, US Treasuries, oil, silver, and so on, almost every other day. These are not healthy measures. "

At the moment, what attracts market watchers is the once-in-a-generation appreciation of the dollar. As a result of the Fed's actions, global investors flocked to higher-yielding US assets, the dollar strengthened, while other competing currencies weakened, pushing the dollar index to its best year in decades.

"historically, such a strong dollar has led to some kind of financial or economic crisis," Michael Wilson, chief equity strategist at Morgan Stanley, said in a report. The past highs of the dollar are consistent with the Mexican debt crisis in the early 1990s, the US technology stock bubble in the late 1990s, the housing frenzy before the financial crisis in 2008 and the sovereign debt crisis in 2012.

'The dollar contributes to instability in some other economies because it increases inflationary pressures outside the United States, 'Themistoklis Fiotakis, global head of foreign exchange and emerging market strategy at Barclays, said in a report.

"the Fed is now speeding, which is pushing the dollar up in a way that is at least unimaginable to us," he wrote. The market may have underestimated the inflationary impact of a stronger dollar on the rest of the world. "

It was against the backdrop of a stronger dollar that the Bank of England (Bank of England) was forced to prop up its sovereign debt market on Wednesday. Investors have been selling UK assets aggressively since the government announced its stimulus package, a move that runs counter to fighting inflation.

The crisis in the UK has made the Bank of England (Bank of England) the buyer of last resort for its own debt, which may only be the first intervention the central bank will be forced to take in the coming months.

In addition, volatile markets will expose the weaknesses of some overseas asset managers, hedge funds or other participants who may be over-leveraged or take unwise risks. While the fall in asset prices is likely to be contained, margin calls and forced liquidations could further stir the market.

The rise in correlation between assets in recent weeks reminds Dunn of the period before the 2008 financial crisis, when currency bets collapsed. The carry trade, which usually borrows money at low interest rates with leverage and then invests in higher-yielding instruments, has a history of failure.

A stronger dollar has other effects: it affects a large number of dollar-denominated bonds issued by non-US countries. It is harder for investors to repay loans, which could put pressure on emerging markets that are already struggling with inflation. Other countries may sell US bonds to defend their currencies, exacerbating the trend of US Treasuries.

Companies that have survived the low interest rate environment of the past 15 years could face default because they struggle to take advantage of higher-cost debt, says Tim Wessel, a strategist at Deutsche Bank.

Peter Boockvar, of Bleakley Financial Group, said: "the problem with all this is that the Fed's own policies have created fragility, their own policies have created chaos, and now the market is relying on their policies to resolve the chaos. "