You know me, I continue to pay close attention to interest rates and the economy overall. I went down a serious rabbit hole this weekend reading all about the collapse of Silicon Valley Bank and Signature Bank, which is causing serious ripples. More on that later. First I want to talk about economic indicators for what’s ahead. People are still spending, companies are still hiring. Many analysts still expect a mild recession in the middle of the year, but with the continued strength of consumer spending and business optimism/continued hiring, projections are becoming more optimistic. This despite inflation that continues, albeit at a slower pace.
Some highlights on the economy:
Together, these indicators of are strong signals that we are not through with inflation yet.
So what’s happening with interest rates? The Fed raised its key interest rate again last month, the 8th time it has done so in the last year. Anticipate a few more small hikes ahead, as inflation is still so high and unemployment so low. All indications are that, at the FOMC meeting this week, the Fed will raise rates again, perhaps 0.25 – 0.5%.
And so, we’re back to the banks: Silicon Valley Bank and Signature Bank both were seized by regulators earlier this month. Each collapsed for markedly different reasons than those that slammed Lehman Brothers in 2008, but they exposed the banks’ vulnerabilities both to increased interest rates and their own unbalanced investment portfolios. And just this past week 11 of the country’s largest banks together have injected over $30B in another vulnerable Bay Area Bank, First Republic Bank, in part to stabilize that institution and also to shore up confidence in the banking industry more broadly.
I bring up the banks because, with the problems in the banking sector this month, there have been calls for the Fed to stop raising interest rates. But the strong February jobs report and this most recent inflation reading are sure indications – and I’m not alone in my thinking here – that the Fed will keep raising rates to tame ongoing inflation. Stay tuned for more.
See you in the trenches,