Market Outlook - April 2023
A tipping point has been reached. Almost a year to the day after the Federal Reserve embarked on a new cycle of higher interest rates and tighter monetary policy, the most aggressive in US economic history, two US regional banks and a Swiss national champion bank have failed. While bond markets are pricing in one final interest hike by the Federal Reserve in May, we believe that the current cycle of interest rate hikes should already be at an end. Tightening cycles typically end with stresses starting to appear in the financial system. The Federal Reserve manages monetary policy in response to the economic indicators of inflation and unemployment, which tend to lag the business cycle, so when stresses appear, it is often a signal that they have gone far enough and, typically, too far already.