at the same time, if they pause or cut, it undermines Fed Credibility, the one thing that they cannot afford to lose if they want to run a low inflation mandate
So many bad takes here on CT.
- Circle foolishly put 8.25% of its USD reserves ($3.3bn/$40b) in a niche bank
- now Circle don't have access to those funds as SBV is technically "insolvent"
- i.e. SBV don't have enough cash or assets on hand to honor all requests for USD
Fed is stuck between a rock and a hard place. If they continue hell-bent on raising rates to tame inflation, the same assets (bonds) on these balance sheets will cause an even bigger hole (hence why I think 50bp hike is off the table)