Notes From Underground

On the Thursday, the ECB will announce its intentions on EU monetary policy. It still looks like the market is still forecasting a 50 basis point increase in its main financing rate as it rises from 3% to 3.5%. At the previous meeting, Madame Christine Lagarde was adamant that the ECB would be a fortress of solitude in its effort to squelch inflation. This will be important for if the European Central Bank crumbles under the potential collapse of Credit Suisse then it means that the global financial system is very worried about a systemic crisis. CRUMBLE infers the ECB PAUSING in an effort to measure the negative effects of a tumultuous global funding market on GENUINE FINANCIAL CONDITIONS.

It has been LORIE LOGAN and JEROME POWELL who have maintained that US financial conditions have been tightening over the last YEAR, not loosening over the last WEEK. It was a month ago that Dallas President Logan said in a FEBRUARY 14 speech at Prairie View A&M:

“What do I mean by tightening monetary policy? The FOMC’s primary policy tool is the target range for federal funds rate. Since the start of 2022, we have raised this target by 4.5percentage points, the largest one-year increase in four decades. In addition, since last June, we have been reducing our holdings of Treasury and agency mortgage-backed securities. Both of these tools push up interest rates for consumers and companies throughout the economy. Financial conditions have therefore, tightened significantly.”

It seems that San Francisco President Mary Daly, my favorite foil, failed to comprehend what the previous head of SOMA was conveying. The San Francisco Fed was responsible for oversight of Silicon Valley Bank, which was experiencing severe tightening in its financial conditions and yet the squawking hawk failed to be aware of this. This was even more problematic because its CEO Gary Becker was on its Board of Directors. Rather than pursuing microphones President Daly ought to have been heeding the advice of Lorie Logan.

FINANCIAL CONDITIONS  are more than the daily price settlement of the S&Ps. The FED HAWKS are going to be watching the ECB closely Thursday for if the ECB President Lagarde turns from her intentions it will signal the FED will certainly PAUSE, for all the major central banks will deem the Credit Suisse situation as a significant systemic event that provokes contagion fears. And it’s yet another reason why the central banks should abandon forward guidance. It locks them into a predetermined outcome even as the facts change. But if the ECB proceeds as intended and the markets decline will FINANCIAL CONDITIONS TIGHTEN FURTHER? If so, watch the markets deliver a severe blow to asset prices and economic forecasts.

My Summary of Economic Projections IS SEVERE TIGHTENING OF FINANCIAL CONDITIONS if intentions are met. It is of great importance that the BIS has designated Credit Suisse as a Systemically Important Global Bank —-along with many others. Be PATIENT IN YOUR TRADING.

Tags: Christine Lagarde, ECB, Federal Reserve, Lorie Logan, Mary Daly

This entry was posted on March 15, 2023 at 8:08 pm and is filed under ECB, Fed. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.