Strength of labor market suggests aggregate supply is still recovering from pandemic-time disruptions. A continuing supply recovery will ease inflationary pressures and there may not be a need for further interest rate increases, contrary to consensus. #jobsreport
Faced with too many unknowns, the #FED kept the course today, although this decision may get the economy in more trouble. Hoping that banks will help with the monetary tightening is also problematic, as it is too risky to use bank turmoil as an anti-inflation tool.
A banking system with limited deposit insurance and unlimited deposit withdrawals is unstable. Broadening the coverage of deposit insurance, with the cost paid by depositors, and a greater reliance on maturity-constrained CDs will help address this instability. #bankingcrisis
FED interest rate increases should be paused. The #FED should not add to banks’ unrealized losses when depositors are growing anxious about banks’ stability. A pause will only slowdown the fight against #inflation, as the full impact of past FED actions is yet to be felt.
If this pace continues, banks’ unrealized losses will disappear in a month or so, but that's not the solution. In any case, this highlights how different this crisis is when compared to others. #bankingcrisis
Lagarde & Warren suggest different approaches to deal with bank weakness brought about by monetary tightening (liquidity assistance vs financial reforms). However, only a combined approach could ensure price and #financialstability in short/long term.
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