After a tumultuous week across the financial markets and rapidly growing fears about the global banking system, the Swiss government stepped in to orchestrate and support the rescue of Credit Suisse. Over the weekend, global central bankers also moved quickly to improve liquidity conditions. The Federal Reserve (Fed) and five other central banks are taking a coordinated action to "ease strains in global funding markets, thereby helping to mitigate the effects of such strains on the supply of credit to households and businesses.”1
Economic releases this week will take a back seat to another Fed interest rate decision out Wednesday. Markets are pricing in almost even odds of a 25-basis-point rate hike or no change in rates.2 The primary question being debated now is can the Fed separate its ongoing battle to contain inflation from its role to support the banking system and maintain financial market stability. I continue to lean toward the Fed holding rates steady as the stresses being felt in the banking system are closely tied to the Fed’s aggressive monetary tightening over the past 12 months.
Sources:
1Source: Board of Governors of the Federal Reserve System- Coordinated Central Bank Action to Enhance the Provision of U.S. Dollar Liquidity; 3/19/23
2Source: MarketWatch- U.S. Economic Calendar; as of 3/20/23
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