Following comments by Raphael Bostic, head of the Atlanta Fed, whose view is that a US recession scenario is unlikely and the banking sector is strong, St Louis Fed chief James Bullard, known for his hawkish stance, also spoke in a similar vein. In his view, the rapid response to the banking crisis has meant that the Fed can again focus on fighting inflation but regulators can do more if necessary. At the same time, Janet Yellen called a closed meeting of the Financial Stability Oversight Council.
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- The banking system in the United States is still very strong and resilient; in very good shape;
- Inflation expectations are relatively low, which bodes well for disinflation this year; we will see if the Fed needs to intervene additionally;
- This could be a downside if financial stress worsens, but this is not the most likely outcome;
- I see an 80% chance that financial stress will decline and the focus will return to inflation; recession is a lower probability outcome;
- In the most likely scenario, the Fed will have to tighten policy more as financial stress subsides - the economy remains strong, with a strong labor market;
- In response to the strong economy, the final rate for 2023 is raised by 25 bps to a range of 5% - 5.75%, assuming financial stress subsides;
- Abandoning the 2% inflation target would be a "disaster" and would send the world back to the 1970s;
- The latest Fed projections suggest one more rate hike at the next meeting or shortly thereafter;
- Today's situation is radically different from that of 2007-2009; The probability of a global crisis resulting from recent tensions is low;
- Banks are becoming more cautious, but no real problems have been identified.SVB is a very unusual case;
- Inflation is too high, and macroeconomic data from the U.S. are higher than expected;
- It is not unusual for some companies to fail to adapt to changing financial conditions;
- Regulators can do more, if necessary, to reduce financial stress. If the economy appears weak, the Fed will respond.
EURUSD chart, M15 interval. The US dollar strengthened slightly against the EUR after Bullard's statements and better PMI data. The key level for the bulls may turn out to be 1.077 at the 38.2 Fibonacci elimination of the upward wave initiated in mid-March. Source: xStation5