Here we are starting the second quarter of 2023, and already it’s been an interesting ride.
Of course the big news was the failure of two Silicon Valley banks. Although looking at the reasoning and details, this is far from a crisis, and more of an unfortunate circumstance (overly simple explanation = rising rates made the bank’s safe investments not worth as much short term).
But for me, the more noteworthy part was what happened in March’s Federal Reserve meeting. The Fed ended up raising rates again. Of course, it was a small increase (25 basis points), but it signaled some interesting thoughts if you’re into reading the economic tea leaves: banks in general are just fine, and they are NOT going to back off trying to tame inflation.
Think about this – the two bank failures were at least partially attributed to rising rates. And the Fed’s response was akin to “yea, it’s unfortunate for these two, but it happens. Now, about inflation….”
In other words, the Fed obviously feels it was a perfect storm of particular investments and widespread withdrawals that contributed to these failures, and it’s more an anomaly than a trend.
The second thing is, even with the talk of “maybe they should back off” the fed essentially said “nope, taming inflation is too important” (I am embellishing and paraphrasing of course. Nobody said these things. But the actions make this conclusion a pretty logical one.)
I’ve been saying for a year now that rates aren’t going to return to previous 2021 lows for a long time, and this cements my belief further. I do feel we might be getting close to peak rates, but I don’t see cuts for quite some time.
Now that I’ve done rates to death, let me discuss one other thing – the talk of a possible recession….
I don’t know about you, but I’ve been hearing this for an entire year now. I’m beginning to think this is going to be a perpetual thought in our 24/7 social-media-driven news cycle, and people say it just to say it. As I’ve alluded to in a few recent posts, demand is still here, people still want goods and services, and the jobs outlook continues to be strong – there are more jobs than workers to fill them. I think we’re going to level off nicely, without a recession.
So in the end, my outlook is considerably brighter than the news. Maybe you should come here more often!