The Big Picture – March 21st, 2023

Published Mar 22, 2023

“We’re all quite mad here, you’ll fit right in.” – Alice in Wonderland

If you wonder why the Fed would even consider another rate increase as banks hoard cash and lending standards for everything from autos to credit cards to business loans are tightening rapidly, join the club.

If you wonder why lawmakers thought that banks with $249 billion in assets should be allowed to measure their risks differently from banks with $250 billion in assets, and how former Rep. Barney Frank (co-author of the Dodd/Frank Act) wound-up on the board of recently failed Signature Bank, join the club.

If you wonder how the Fed’s efforts to curb lending by raising the Fed Funds rate (what banks charge each other for over-night loans) will eventually wash with the fact that banks are now encouraged to borrow hundreds of billions of dollars directly from the Fed’s discount window and the Federal Home Loan Bank system on emergency terms, join the club.

And if you wonder why Swiss regulators wiped out Credit Suisse convertible contingent bond holders while protecting equity holders (the exact opposite of what should’ve happened), join the club.

I can’t remember a period with more head-scratching questions and if I was an FOMC member, I think I’d refrain from adding to the confusion this week and simply call a “time out”; they won’t, and odds are we’ll see another 25 basis points. But the 25 bps is almost irrelevant, what really matters is what Chairman Powell says after the meeting and I struggle to think of anything he can say that won’t induce more wonder.    

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