Overview

- As we expected, the Federal Reserve (Fed) raised the fed funds rate by 0.25%, pushing the upper bound to 5.00%.
- Financial conditions were stable enough for the Federal Open Market Committee (FOMC) to release updated projections, unlike the Fed’s decision back in March 2020 to delay updated projections due to financial instability.
- Yesterday, the Committee was unanimous in their decision, creating an aura of calm for markets.
- Financial stability is clearly a vital factor in future decisions, but as of now, the Fed will likely hike at least one more time at the May meeting.
- Tighter credit conditions translate int...
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The Federal Reserve (Fed) has a history of raising short-term interest rates until something “breaks.” Considering the Fed has raised rates from a near-zero level to 4.75% (upper bound) over the course of only one year, it was almost a near certainty this time would be no different. Recent bank failures suggest things are indeed starting to break. However, we don’t think we’re on the brink of a full-blown crisis, as market indicators we follow suggest contagion risks are still currently low. And while we don’t think a full-blown crisis is imminent, financial stability risks have clearly increased, which makes a p

Just as the market was starting to make some progress digesting the news of the Silicon Valley Bank (SVB) failure, another source of potential financial stress popped up in the form of Credit Suisse (CS). Here’s what we know about this situation right now, what it could mean, and some investment ideas investors may want to consider in light of this week’s volatility.

What happened?

Credit Suisse shares were down more than 30% at one point on Wednesday to record lows before rallying back to end the session down 14% (excluding the after-hours rally—more on that below). Markets were already jittery after the SVB news over...
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Those of us who lived through the Bear Stearns, Lehman Brothers and Washington Mutual (to sadly only name a few) financial collapses are shuddering at the thought history may be about to repeat itself. Thankfully, as we wrote about in Monday’s blog, there are important reasons why we think this time may in fact be different. Unlike the subprime mortgage-backed securities and esoteric collateralized debt obligations that turned out to be toxic assets and were ultimately (near) worthless, the securities at issue today are AAA-rated U.S. Treasury and Agency mortgage-backed securities. However, despite the fact that these securities will ma