Fed: Policy of ultra-fast rate hikes seems to have failed, USD under pressure – Commerzbank
13.03.2023, 08:54

Fed: Policy of ultra-fast rate hikes seems to have failed, USD under pressure – Commerzbank

Market focus remains on the collapse of Silicon Valley Bank (SVB) and the repercussions for the wider US banking system. Economists at Commerzbank expect the US Dollar to suffer

Has Fed monetary policy failed?

“At the end of last week, a medium-sized Californian bank had to close after the losses that in the end were at least to some extent down to rising interest rates and yields, caused a bank-run. On Sunday a smaller bank in New York also went under.”

“The FDIC put out a statement yesterday confirming that all customers of the two banks concerned would receive their deposits back. Sic! The Fed too reacted immediately: it activated the ‘Bank Term Funding Program’ and the discount window that has been thrown wide open. Of course, it is far too early to judge whether all that is sufficient, whether the calm will return today or whether the contagion effects will ripple through the financial system.”

“Thanks to the Fed swap lines, the Dollar supply can be guaranteed via national central banks if necessary. In the midst of such a situation all projections have to be treated with some caution, but I guess that there are few market participants who want to fill up with Dollars now for fear of a renewed USD shortage. That leaves USD-negative effects.”

“You can look at it this way: the fact that these banks failed is the result of rapidly rising interest rates and yields, i.e. the Fed’s monetary policy. Of course, many will tell you a different story. That it was due to ruthless bankers again.”

 

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