Over the past year I have fully expected the Fed to stick to their pledge to hike and hold rates as high as necessary to get inflation down to 2%. Powell has reiterated a terminal rate of 5.5%+. That being said if banks continue to fall it seems like the fed would have no choice but to pause rate hikes. I mean how could the financial system be crumbling while they still continue to hike rates? It would look very bad and be potentially counterproductive.
The next FOMC meeting is in less than two weeks and during that time the voting members will have adequate time to assess the impact of the two banks that have failed so far and any other that may follow in the coming days. If banks are failing it seems like the fed would have to take a step back and consider whether they’ve done enough damage and give things time to settle and reassess.
That being said, is it possible we have turned a corner and that fed rate changes will no longer be the driving force of market swings? A pivot or pause of Fed rate hikes will not trigger a “pivot rally” as many have been expecting if the economy tanks and banks continue falling.
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