The shocking implosion of Silicon Valley Bank should not deter the Federal Reserve from its war on inflation, according to former FDIC and Fed official Thomas Hoenig.
“The Federal Reserve is in the hot seat. It’s a no-win situation for them,” Hoenig, the former vice chair of the Federal Deposit Insurance Corporation, told CNN in a phone interview on Monday. Raising interest rates at the Fed’s monetary policy meeting next week could add to the financial pressure facing the banking system, in part by further depressing the value of the bonds that banks are sitting on.
Nomura is going a step further, predicting the Fed will completely reverse course and start cutting interest rates next week and halt the shrinkage of its balance sheet. “This could somewhat reduce the risk of further bank runs, as well as reduce unrealized capital losses,” Nomura told clients in a note on Monday. This marks a dramatic reversal, given that Nomura previously expected a half-point rate hike.
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