How Much Resolve Does Jay Powell Have?

How Much Resolve Does Jay Powell Have?

A Fed pivot to lower rates would end the banking crisis and likely reignite inflation. What will Fed Chair Jay Powell do?

The shorts are correct. You shouldn’t believe Jamie Dimon and Jay Powell.

  • Jamie lied earlier this week when he talked about “this part of the banking crisis is over.” No, as we said weeks ago, many banks will have the short-term liability, long-term asset problem that took down SVB, SBNY and FRC as many banks simply did not manage interest rate risk. Too many U.S. executives across banking and other sectors believed interest rates would forever remain at zero.
  • Powell lied yesterday when he said the Financial system is strong. The Fed could not backstop the banking industry if it tried (our earlier article HERE).

What the hell is going on at the San Francisco Fed? I am being sarcastic. The academics at the San Francisco Fed don’t know how to manage a business and I would not expect them to effectively oversee the banks in their town including Silicon Valley Bank, First Republic and now the third local bank that will likely fail – PacWest Bancorp.

Don’t forget about the looming Office Property Market debt problem that looms over the San Francisco Bay Area. The Bay Area is suffering through a structural reset as it relates to the Office Market (our earlier article HERE).

Let’s see how much of an appetite Jay Powell has for forcing bank sales to J.P. Morgan and what Jamie Dimon’s appetite is for absorbing them.

Powell pivoting to lower rates would resolve the banking crisis but would cause the Fed to lose the inflation fight. How much resolve does Jay Powell have? Not much in my view.