The Fed may well hike U.S. interest rates again on Wednesday but cracks appearing on multiple fronts - jobs, lending, the banking system and debt ceiling - strongly suggest it will be the last of the cycle.
"As banking sector developments continue to unfold, some FOMC policymakers may prefer a wait-and-see approach to the prospect of additional rate hikes in June and beyond," wrote HSBC's U.S. economist Ryan Wang on Tuesday.There is little indication that regional banks will get out of the firing line any time soon. The KBWslumped 5.5% on Tuesday to a two-and-a-half year low and has lost a third of its value in two months.
The deposit flight may have stopped but Fed officials will be acutely aware of the negative feedback loop on the economy, given the deep-rooted linkages betweenAccording to Goldman Sachs, 70% of small firms' commercial and industrial loans are from banks with less than $250 billion in assets; in over half of U.S.
"This steady attack on regional banks is destructive to financial markets and ultimately the economy," former Boston Fed president Eric Rosengren tweeted on Tuesday. Small businesses account for around 40% of national employment. Figures on Tuesday showed that 'JOLTS' job openings - Fed Chair Jerome Powell's favorite labor market indicator - fell for a third month to the lowest in almost two years.
The March survey of small businesses by the National Federation of Independent Business showed multiple signs of weakness, and even more attention than usual will fall on the nextThe quarterly survey of banks about whether they are tightening or loosening loan standards will be released next week, but is already in the hands of FOMC rate-setters this week.
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