Federal Reserve Announces Review of Silicon Valley Bank after Collapse, Signaling Potential Deflation
The collapse of Silicon Valley Bank has sent shockwaves through the markets, with experts suggesting it could be a sign that the Federal Reserve’s monetary policy is starting to bite.
Fundstrat co-founder Tom Lee has noted that the credit shock resulting from the bank’s failure is causing deflationary forces to be unleashed, potentially signaling the breaking of inflation.
This has been reflected in the Fed fund Futures market, which is now pricing cuts by the end of the year and a drop in yields.
In response to the failure, the Federal Reserve has announced a review of Silicon Valley Bank and its supervision, acknowledging the need for “humility and conduct[ing] a careful thorough review.” Fed Chair Powell has also emphasized the importance of a transparent and swift review, promising to make the results public by May 1st.
The bond market has also shown signs of significant shifts, with the two-year treasury note slipping below 4% and the yield curve de-inverting.
While this could be due to easing financial conditions or a response to breaking inflation, it is clear that something has potentially been broken within the banking industry.
The review by the Federal Reserve will likely shed more light on the situation and provide insights into the future of the markets and monetary policy.