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I think the target for the Fed is to cause unemployment to hit 6-7% before it will pivot. That's what employers want really to cause a rinsing of the labor and commodity prices. You can't fix supply chain inflation without drastically reducing demand. It won't be painless that's for sure.
Or maybe we are not. Everyone has acknowledged rate increases are intended to "break things". Well here's a broken piece. Could all banks come tumbling down? Well its not a 0% chance but pretty close to it. Businesses win and lose, here's one that has now lost for its shareholders. Others may too. However that's built into the math.
If we see a handful of closures the Fed will get what it desires, tighter monetary conditions. Those cause economic slowdowns. Lack of financing causes growth projects to get postponed or squashed. Hiring is reduced. Construction stalls. Yep, sounds like exactly what the Fed wanted. What the Fed doesn't want is systemic collapse of banking. They will intervene to prevent that.
FOMC Futures bets on a 25 point hike increased to 62% after the SVB news. The very backwards looking Fed has got stop the nonsense.
The futures dropped before the closure of SVB. It's just a bunch of big gamblers reading into every Fed members mind and has little to do with reality. Powell talked tough that got this 50 bet going but it never really made sense. They will do 25 at a time until they are ready to stop barring crazy news.
Prices aren't coming down, best hope is they level off later this year. This is the result of the cost to run a business has increased dramatically. Better wages, more benefits costs, tangible goods cost more, it's what everybody was clamoring for, now it's here.
There cannot be perpetual debt expansion in a finite realm. There cannot be perpetual GDP growth in a finite realm. Eventually, something must give- and something will give.
I have been predicting this for some time. We are staring at an imminent financial crisis- a financial crisis that should have happened in 2008, but an order of magnitude more severe and more punishing.
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