I don’t see the Fed taking a pause regarding further hiking of its Fed Funds rate. Heck, banks can borrow at 4.71% from the BTFP, which is a discount to the Discount Window. A 25 BPS hike is likely in the cards.
- As we wrote recently, the Fed must fight inflation. Commercial banks will help in the inflation fight as they undoubtedly will tighten credit as a result of the Banking industry excitement of the past several weeks.
- I don’t buy that the Fed is going to take rates back down to 0-2% and do so quickly. We don’t yet have a credit crunch.
- Until such time, the Fed is likely to pursue higher rates as Core Inflation (5.5% Core CPI in February is not too far off September’s high of 6.6%), is running hot.
The Fed would lose all credibility if it paused Wednesday and began to cut rates rapidly beginning in April/May given where CPI is. We did not have elevated inflation in 2008 when the Fed and Treasury bailed out banks with massive QE injections and took rates lower.
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