For the Federal Reserve, credibility is everything. And its credibility is being tested by how it plans to manage the banking system as outlined in meetings yesterday and today.
Last month, Fed Chair Powell confidently told Wall Street to prepare for a 25-basis point increase in short-term rates in March. But with inflation remaining hot, some speculators have been calling for a 50-basis point bump.
To complicate matters further, 2022’s rapid rise in interest rates appears to be a stressor on the banking system. The Federal Deposit Insurance Corporation (FDIC), in recent days, took control of both Silicon Valley Bank (SVB) and Signature Bank (SB). And now some are suggesting that the Fed should pause its strategy to manage inflation with higher interest rates to help the banking system.
In short, the Fed is at a bit of a credibility crossroads. Supervising and regulating the banking system as a means of protecting consumers is one of the Fed’s most important roles. That’s why the U.S. government has already approved plans to safeguard depositors and financial institutions affected by the closing of both SVB and SB.
At the same time, Wall Street wants to believe the Fed is data-dependent, not data-reactive. The markets want to believe the Fed has a plan for inflation and is considering how higher short-term interest rates are affecting the nation’s banks.
So, it’s best to prepare for more market volatility in the days ahead as Wall Street is sorting through several issues, and looking to the Fed to provide some reassuring guidance.
Learn more at Brumbaugh Wealth Management.
Kim Brumbaugh is the founder and CEO of Brumbaugh Wealth Management, an Exton-based firm that helps secure people’s financial futures by understanding their unique position and providing personalized solutions for their needs. She started her firm in 2004 with a clear vision to coach clients through complex financial situations and act as a catalyst to get things done.
Office located at 415 Eagleview Boulevard, Suite 110, Exton, PA 19341.
Any companies mentioned are for illustrative purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Any investment should be consistent with your objectives, timeframe, and risk tolerance.
The views stated in this letter are those of FMG Suite, LLC, and not necessarily those of Cetera Advisor Networks LLC or Registered Representative and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.
Registered Representative offering securities and advisory services through Cetera Advisor Networks LLC (doing insurance business in CA as CFGAN Insurance Agency LLC, insurance license # 0644976), Member FINRA/SIPC, a Broker-Dealer and a Registered Investment Advisor. Advisory services also offered through AdvisorNet Wealth Partners. Cetera is under separate ownership from any other entity.