![]() ![]() If all that is true, the Fed has no reason to soften its aggressive interest-rate stance. On top of that, it says the banking system as a whole has bigger capital buffers to offset losses than it had in 2008. It has guaranteed all deposits at SVB and announced a new generous funding programme to help banks running into cashflow problems. Yet the Fed insists it has taken steps that will ensure there is no contagion. The Fed has been removing chairs and there is no longer adequate seating capacity,” Warburton said. “Short-sellers and deposit withdrawals have brought down SVB, but the problem is systemic. Peter Warburton, chief economist with the research group Economic Perspectives thinks they are right to be worried, because the Fed has miscalculated the impact of the double whammy of higher interest rates and the selling of bonds under the process known as quantitative tightening. Financial markets have reacted badly to the failure of the 16th biggest bank in America, fearing it could be the first of many. Only last week the Fed chair Jerome Powell dropped a hint a fresh 0.5 percentage point increase was on the way.īut that was before the crisis at SVB. ![]() In normal circumstances, the Fed would have no hesitation in continuing to raise interest rates because core inflation – excluding food and energy – stands at 5.5% and is coming down at a glacial pace. ![]()
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