Stress in US Regional Banks Continues, While the Fed Moves Towards a Pause
Thursday 04 May 2023
Investment Talks
Stress in US Regional Banks Continues, While the Fed Moves Towards a Pause
May 2023 | US Federal Reserve Chair Jerome Powell addressed concerns about the banking system, stating that conditions have broadly improved since early March, and re-emphasizing that Fed focus will now be on credit tightening. He said the Fed needs a few months of data to determine if monetary policy is sufficiently restrictive and continued to reiterate the importance of lifting the debt ceiling. While the financial markets may become excited about the prospect of the Fed moving to or near a pause, we would advise caution regarding any near-term course reversal by the Fed since the incoming inflation and economic data are not likely to support rate cuts.
01 | The recent banking stress has been a real test of capital and liquidity regulations enacted after the 2008 crisis.
02 | Market attention will also turn to the prospects of a government default. As a result, we expect to see more volatility in financial markets in the coming month.
03 | The FOMC raised the federal fund rate by 25bp but dropped future guidance. We think that the Fed is setting the table for a conditional pause in monetary policy.
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