She’s argued for months the Fed needs to take a time-out. The central bank wants to dampen Wall Street’s animal spirits and crimp demand for goods and services so inflation returns to a more manageable level and stays there.īut Sheila Bair, the former head of the US Federal Deposit Insurance Corporation, told CNN this week she’s worried about this aggressive strategy, which could pile undue stress on the banking system and the economy. The Fed knows it’s pushing rates to an uncomfortable level. The commercial real estate sector, which is very sensitive to high interest rates, looks particularly vulnerable - its problems made worse by a glut of empty office buildings in the wake of the pandemic.
The shifting landscape paved the way for the collapse of Silicon Valley Bank in March and First Republic Bank this week. Meanwhile, investors are still coming to terms with the rapid run-up in rates, which sparked a huge sell-off in US government bonds and stocks last year.īanks that failed to adequately prepare have been hammered. “We also know policy works with a lag, and the worst is yet to come.” “It’s stunning to me that the US economy has been as resilient as it has been,” she said. That level of joblessness would imply the economy is in recession, Swonk said. The Fed has predicted the unemployment rate will rise to 4.5% this year and 4.6% next year. Yet that will change as companies find it harder to access credit, pushing firms to trim investment and costs. So far, companies have maintained a robust pace of hiring, helping absorb laid-off workers, according to Diane Swonk, chief economist at KPMG. Layoffs jumped by nearly 250,000 to 1.8 million - the highest level since December 2020. However, job openings that month tumbled to their lowest level since May 2021, according to data released Tuesday. The unemployment rate stood at 3.5% in the United States in March. The consequences of higher borrowing costs have started to show.
That would allow policymakers to assess the consequences of the rate hikes enacted to date, which take time to feed through financial markets and the economy.
Investors expect the central bank will announce another quarter-point increase today before signaling a pause. Step back: The Fed has swiftly raised interest rates in a bid to tame inflation, which fell to an annual rate of 5% in March but remains way above its target. (Photo by Liu Jie/Xinhua via Getty Images) Liu Jie/Xinhua/Getty Images The Fed raised interest rates by 25 basis points at the conclusion of its two-day meeting on Wednesday, lifting the target range of the federal funds rate to 4.75-5 percent. Federal Reserve Chair Jerome Powell Rear attends a press conference in Washington, D.C., the United States, on March 22, 2023.
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