Skip to main content

The FED's dilemma.

 

USD
The US Fed­eral Reserve must make one of the most con­sequen­tial decisions of its rate-rais­ing cam­paign this week as it con­siders whether to imple­ment another increase without know­ing if efforts to shore up the bank­ing sec­tor will work in the long term.

Cent­ral bank offi­cials were gath­er­ing yes­ter­day for their latest two-day meet­ing, at which they must decide whether to press ahead with another quarter­point rate rise or forgo an increase.
The dilemma comes after global author­it­ies acted swiftly to sup­port the fin­an­cial sys­tem fol­low­ing Sil­icon Val­ley Bank’s col­lapse, the Fed rolling out a new facil­ity to aid lenders and the Swiss gov­ern­ment broker­ing a hasty takeover of a fal­ter­ing Credit Suisse by UBS.
But it remains unclear whether these actions will be enough to stem the fal­lout from the crisis. «This whole thing is a dis­in­fla­tion­ary event . . . but it is very dif­fi­cult to know how dis­in­fla­tion­ary it is,» said Ian Shep­herd­son at Pan­theon Mac­roe­co­nom­ics, refer­ring to the bank­ing tur­moil.
Fuel­ling the uncer­tainty is the fact that regional banks are expec­ted to sharply cur­tail their lend­ing in response to the recent ruc­tions. Tor­sten Slok at Apollo Global Man­age­ment estim­ated banks hold­ing roughly 40 per cent of all assets across the sec­tor could retrench, lead­ing to a sharp reces­sion this year.
«What we do know is that the com­bin­a­tion of both the lagged effects of mon­et­ary policy slow­ing things down and now mag­ni­fy­ing that with this down­side risk is just mak­ing things more com­plic­ated,» he said. Most eco­nom­ists have since revised down expect­a­tions for the «dot plot», which aggreg­ates indi­vidual fore­casts for the fed funds rate through to 2025.
Before the implo­sion of SVB, many thought the median estim­ate for the socalled ter­minal rate would rise by half a per­cent­age point to between 5.5 per cent and 5.75 per cent. Now, some fore­cast that to remain unchanged while oth­ers expect only a quarter-point increase.
«The Fed has got some more to do,» said Vin­cent Rein­hart, who worked at the cent­ral bank for more than two dec­ades, though he said offi­cials were «less sure where they are headed».

Labels:

Comments

  1. Eric22 March 2023 at 11:58

    Let's see what they decide. Most people were under the impression they would press ahead with a rate rise. And I think that's what they will ultimately do. It may not be what they initially planned, maybe smaller.

    ReplyDelete

Post a Comment

Cloud Bookkeeping

US FED rate rise.

  The US Federal Reserve officials have indicated that they plan to resume increasing interest rates to control inflation in the world's biggest economy. During the June meeting, the Federal Open Market Committee reached a consensus to keep interest rates stable for the time being to evaluate whether further tightening of policy would be necessary. However, the majority of the committee anticipates that additional rate increases will be required in the future. The minutes of the meeting have recently been made public. According to the minutes, most participants believed maintaining the federal funds rate at 5 to 5.25 per cent was appropriate or acceptable, despite some individuals wanting to raise the acceleration due to slow progress in cooling inflation. Although Fed forecasts predicted a mild recession starting later in the year, policymakers faced challenges in interpreting data that showed a tight job market and only slight improvements in inflation. Additionally, officials gr...
Post a Comment
Read more

India- UK trade deal.

  According to India's top trade official, talks with the UK regarding a trade agreement are progressing well, despite obstacles related to temporary work visas and the opening up industries like automotive and spirits. The Commerce and Industry Minister, Piyush Goyal, explained that India is seeking transition periods or greater market access in specific sectors due to its economy, which is slightly larger than the UK's and expected to outgrow it in the coming decades. If a trade deal is reached, it would be one of the most significant agreements for Britain since leaving the EU, and it would also be necessary for India, which surpassed the UK as the fifth-largest economy last year. Goyal stated that India aims to increase its economy from $3.5tn to $35tn by 2047, the country's centenary of independence. According to officials and diplomats in India, talks about a proposed trade deal may be finished by early September, just in time for the G20 summit in New Delhi. Nigel Hu...
Post a Comment
Read more

EU business slide.

  S&P Global’s flash eurozone composite purchasing managers’ index, a key gauge of business conditions for the manufacturing and services sector, fell 1 point to 47.1, figures showed yesterday. That is its lowest level since November 2020 and the fourth consecutive month below the crucial 50 mark separating growth from contraction. One of the few bright spots in the survey was that companies in all sectors reported a slight easing of cost pressures, price growth and supply chain constraints. However, prices charged for goods and services still rose at the sixth fastest rate since such data started in 2002. Jobs growth increased marginally from October but remained low compared with the past 18 months. Following a few months of falling price pressure in manufacturing and services, the October print shows an overall stabilisation said Jens Eisenschmidt, chief European economist at Morgan Stanley. However, German businesses, at the hub of Europe’s energy crisis, reported that manu...
1 comment
Read more