Mr Powell & The FED Will Save Banks & Delay Interest Hike.
On 07 Mar 2023 when Mr Powell sat down with Congress in their annual meeting; he had made it very clear that the Fed has every intention to raise interest when FOMC next convene.
Stripped away the “interrogations” Mr Powell had endured during the Q&A session; in plain sight, official data showed strong resistant to the eight interest hikes carried out between Mar 2022 and Jan 2023.
What he could not commit was whether it would be a 0.25% or 0.50% hike.
The Fed is fighting very hard to bring inflation under control quickly because there are severe consequences for the US economy if it continues to operate under a persistent “high inflation” environment ?
Possible Damages To A High Inflation Economy : (Google to find out more, list is endless……)
Lost of purchasing power
Disadvantaged lower income and fixed income earners.
Investment returns “diminished”
Inflation induced Recession ?
Lower exports.
Loss of innovative industries due to high costs that nobody wants to fund
Etc….
During meeting with Congress, what Mr Powell could not predict was:
Silicon Valley Bank’s wrong investment product launched
Size of the wrong investment product launched
As Bonds product experts, isn’t SVB aware of the “risk” the launched product is exposed to, in the face of continuous rising interests ?
As a Bank whose customers are primarily businesses & people in technology, venture capital etc.. isn’t the bank aware of its customers’ cash burn rate and withdrawals patterns?
When the above were mixed together, it was a receipe for disaster.
What made it “worse” was the bank’s fallout affected other banks; namely $Signature Bank(SBNY)$ and $First Republic Bank(FRC)$ .
With Signature Bank, a saviour has been found in the name of $New York Community(NYCB)$ Bank.
With First Republic Bank it is still a “work in progress” as the $30 Billion capital injection is still unable to restore calm to the bank.
As the Federal Open Market Committee (FOMC) set to meet later this morning (US time), what is certain:
US banking sector is still weak & jittery as evident in SVB’s and FRC situations.
US consumers are not confident that the worse is over for banks in the Financial sector
It is an unknown whether other mid-sized or smaller-sized banks may suffer the same fate if the Fed raise interest rate for the 9th time.
It is still an unknown should another run in a US bank will once again affect international banks (eg. Credit Suisse by SVB).
It is hoped that every FOMC member does not forget the roles & responsibilities of the US Federal Reserves.
Broadly, there are 4 main rules. However, rule #3 (see below) calls into focus on this occasion.
Maintaining financial system stability and containing systemic risk.
While the goal of getting the US economy “whipped” back into shape is important (after 2 years of damages brought about by an unprecedented worldwide pandemic) - it is hoped that the Fed remembers to go back to the basics.
That is to (a) “maintain stability” and (b) “contain systemic risk”; both elements that are glaringly evident in the US Banking sectors now.
To achieve this, it could only mean one thing and that is to :
hold back the interest hike for Mar 2023
allow calm to return to the banking sector and US market
re-visit a possible interest hike in next scheduled FOMC in May 2023
all the while, permit current interest rate (4.50% - 4.75%) to continue exert its effect across the US economy.
Do you think it will be ok to delay the interest hike in Mar 2023 ?
Do you think the Fed will delay interest hike in Mar 2023 ?
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