As far as the stock market goes, when interest rates go up, higher borrowing costs tend to reduce growth in consumer spending and increase company borrowing costs, both of which are negative for corporate earnings growth. The bond market is even more sensitive to interest rates. The structure of the bond market builds market expectations into the yield curve, and the current level of rates already built in three rate increases over the course of the next year. After May's rate increase, the bond market rallied. Hence, the significant tightening that used to spook the markets may actually persuade and reassure investors that the Fed really means business this time.
Most experts count on a six-month lag time between interest rate hikes and real results.
Shrinking the money supply takes time. First, bond selling has to reduce the reserves. Second, the banks have to see a slowdown in their lending. For example, consider buying a home. When all is said and done, supply and demand are back in sync, but it takes time for the ripple to work its way through the economy.