⚠️ It’s FOMC announcing the interest rate hikes and the market reaction will be intense. Suggest to watch and react accordingly or simply stay away from such a volatile day to trade another day 😉
As posted a day prior to short under 414.5
The US banking system is still struggling with the impact of the Federal Reserve’s 4.75 percentage points of interest-rate hikes, even as the central bank is set to add another quarter point on Wednesday. The resolution of First Republic Bank’s woes was supposed to relieve matters, but regional lenders promptly sank on concerns others will need rescuing.
The Federal Reserve is expected to deliver a 25 basis-point interest-rate increase and then signal a pause in its aggressive hiking campaign, as tighter lending conditions and signs of a slowing economy suggest inflation will cool more meaningfully in the months ahead.
Final rate hike or a pause?
Several lawmakers, including Senators Elizabeth Warren and Bernie Sanders, have urged Powell to stop raising rates, and warned in a letter that bank turmoil and cumulative rate hikes “leave our economy even more vulnerable to an overreaction by the Fed.”
This looks to be a slow-moving car crash — monetary policy famously acts with a lag. It’s also a bit counter-intuitive, because traditionally the expectation is that higher rates improve bank profits by allowing them to increase the gap between their cost of capital and the interest they charge.
Banking crisis is not over yet
There’s the persistent yield curve inversion that works against those who borrow short-term and lend longer-term, and the Fed has helped make money-market rates high enough to lure depositors away.
Then there’s the unintended consequences of post-2008 regulations that mandated lenders to hold larger amounts of Treasuries — assets that are now worth a lot less after Fed rate increases.
More blood on the streets?
All that underscores the potential that the banking woes, and their own slow-moving impacts on broader credit conditions, will push policymakers to halt hikes sooner than they’ve been signaling they’re likely to do.
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