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

HS2 cost cuts new routes and add delays.

 Trans­port depart­ment offi­cials have begun work on «Project Sil­ver­light» sug­gest­ing the high­speed rail scheme might face four addi­tional years of delay. The planned High Speed 2 rail line faces fur­ther delays of up to four years and more cuts to the project under plans being drawn up by min­is­ters to rein in its bal­loon­ing costs. The extra delays to the coun­try’s biggest infra­struc­ture project would mean that it would not be com­pleted until as late as 2045 — 12 years after ori­gin­ally planned. «This is a func­tion of infla­tion; we are hav­ing to find huge sav­ings because the cost of everything the depart­ment is already doing will have become so much more expens­ive by then,» said one gov­ern­ment offi­cial. In Octo­ber, the FT repor­ted that the Treas­ury had asked HS2’s man­age­ment team to identify poten­tial cuts or «scope reduc­tions» to the high-speed line. Trans­port depart­ment offi­cials have sub­sequently begun work on Project Sil­ver­light aimed at fi...
4 comments
Read more

Small business will be excluded from fraud law.

  Min­is­ters are plan­ning to exclude small busi­nesses from anti-fraud legis­la­tion by nar­row­ing the scope of a crim­inal offence tar­get­ing com­pan­ies that fail to pre­vent eco­nomic crimes. MPs and anti-cor­rup­tion cam­paign­ers had hoped the gov­ern­ment would seek to amend the eco­nomic crime and cor­por­ate trans­par­ency bill to ensure the new offence covered all com­pan­ies. The plans to limit the scope of the amend­ments will also dis­ap­point those who had hoped the legis­la­tion would remove key hurdles to the pro­sec­u­tion of white-col­lar crime. A new «fail­ure to pre­vent» offence for fraud would bring it in line with exist­ing sim­ilar cor­por­ate offences for bribery and tax eva­sion. At present, pro­sec­utors need only prove that organ­isa­tions lacked «reas­on­able» or «adequate» con­trols to pur­sue the offence in bribery and tax eva­sion cases. «It would be much more sens­ible for the gov­ern­ment to provide strong guid­ance for SMEs on what these pro­ce...
3 comments
Read more

Doubt on CS's collateral.

  Credit Suisse provided an emergency $140mn loan to Greensill Capital based partly on invoices to companies that deny ever doing the business stated on the documents. The Swiss bank provided the loan in October 2020, less than five months before the collapse of Greensill, a supply chain finance firm that counted former British prime minister David Cameron as a senior adviser. Invoices issued by metals magnate Sanjeev Gupta’s Liberty Commodities and sold to Greensill formed part of the collateral for the loan, according to documents seen by the Financial Times and people familiar with the transaction. Yet several of the parties named on the invoices have told the FT they did no business with Liberty. GFG has consistently denied any wrongdoing. Credit Suisse’s loan had a clause dictating that the collateral value had to be equal to or greater than the $140mn borrowed. The terms of the debt agreement only allowed invoices on Green-sill’s balance sheet to count towards this tally if t...
2 comments
Read more