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Regime transition
Aurelie Barthere
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Key Takeaways
8 min read
  • The various backstop tools put forward by the Fed recently are not Quantitative Easing, but seek to provide banks with immediate liquidity relief to sustain some restructuring. If anything, banks are likely to tighten their conditions on new loans, which will be negative for growth and inflation, with a lag
  • We are transitioning to a new regime, where central bankers will grow a bit more concerned by growth, and not only by inflation
  • We are not yet at the point where weak growth forces central bankers to pivot, although it makes sense to start positioning for “recessionary” trades. The Fed is likely to hike by 25bps at its next meeting and maintain Fed fund rate projections flat (contrary to rate cuts priced by future markets in H2 2023)
  • We see crypto having a likely last leg down when the recession does come, before bottoming

No quantitative easing has occured in the last two weeks

Not Quantitative Easing (QE) but a set of financial stability instruments to provide banks with immediate liquidity without having to “fire sell” debt securities:

The various facilities and tools that have been put forward or facilitated by the US Fed and the FDIC since March 12 and the failure of Signature Bank and Silicon Valley Bank aim at restoring confidence while the “problematic” banks get restructured / acquired by stronger competitors and while markets calm down. In the US, one main common issue between Signature, Silicon Valley Bank and now First Republic Bank was the presence of “unrealized losses” in the securities that sit on the banks’ respective asset sides....