Jerome Powell has a very important Federal Reserve meeting coming up on Wednesday, where he will announce the Fed’s decision on interest rates. So much of the Market's future is contingent on this decision.

Recent Events has caused the Federal Reserve and the Federal Deposit Insurance Corporation to actively manage the risk in banks.

After the 2008 financial crisis, the Federal Reserve kept interest rates low to stimulate the economy and banks got extremely comfortable with long term bonds.

These interest rate-dependent bonds are risky. A 10-year treasury bond bought at a low interest rate can be profitable when rates fall lower, but its value decreases if rates rise. The longer the bond's maturity, the more sensitive it is to interest rate changes.

Banks that cannot bear these losses are small. The regional banks are vulnerable and are susceptible to failure.

The Federal Reserve & FDIC, to backstop the deposits in these banks, have stepped in to promise of deposits to prevent a run on the banks.

As a result for this sudden need for liquidity, the Federal Reserve Balance sheet has increased by $300 Billion in less than a week.

Lastly, the Federal Reserve has opened a credit facility where banks can get loans at face value of underwater bonds, which are their collateral. 

https://www.federalreserve.gov/newsevents/pressreleases/monetary20230312a.htm

If Powell doesn't raise rates, asset prices rise, the dollar falls, assets on bank balance sheets increase in value and liabilities decrease. Supplying Liquidity becomes cheaper.

Suddenly it is easier to supply liquidity as the Federal Reserve can feign a pivot until the next meeting, in order to provide a short term period of aid to banks.

Simultaneously, the Federal Reserve could use the threat of a bank run as a disinflationary force, discouraging investment in new projects. 

If Powell doesn't raise rates, asset prices rise, the dollar falls, assets on bank balance sheets increase in value and liabilities decrease. Supplying Liquidity becomes cheaper.

If Powell raises rates, it goes against his earlier market actions. Increasing the money supply while raising the price of money is risky. He'll have to boost liquidity for regional banks later.

https://twitter.com/sherlock_hodles/status/1636765095140405248?s=20

A 25 basis point hike is the most likely outcome, should he choose to raise rates. Raising rates in the face of adversity is a brilliant way to continue the fight against inflation.

I would love to see the Federal Reserve hold rates where they are, rather than raise them while providing liquidity. This would be the event needed to send Ether & Bitcoin into their next holding patterns somewhere north of 2000 & 30000 respectively.

Either way, I will be biting my nails waiting on this meeting later this week on Wednesday March 22, 2023. 

Jerome Powell has a very important Federal Reserve meeting coming up on Wednesday, where he will announce the Fed’s decision on interest rates. So much of the Market's future is contingent on this decision.

Recent Events has caused the Federal Reserve and the Federal Deposit Insurance Corporation to actively manage the risk in banks.

After the 2008 financial crisis, the Federal Reserve kept interest rates low to stimulate the economy and banks got extremely comfortable with long term bonds.

These interest rate-dependent bonds are risky. A 10-year treasury bond bought at a low interest rate can be profitable when rates fall lower, but its value decreases if rates rise. The longer the bond's maturity, the more sensitive it is to interest rate changes.

Banks that cannot bear these losses are small. The regional banks are vulnerable and are susceptible to failure.

The Federal Reserve & FDIC, to backstop the deposits in these banks, have stepped in to promise of deposits to prevent a run on the banks.

As a result for this sudden need for liquidity, the Federal Reserve Balance sheet has increased by $300 Billion in less than a week.

Lastly, the Federal Reserve has opened a credit facility where banks can get loans at face value of underwater bonds, which are their collateral. 

https://www.federalreserve.gov/newsevents/pressreleases/monetary20230312a.htm

If Powell doesn't raise rates, asset prices rise, the dollar falls, assets on bank balance sheets increase in value and liabilities decrease. Supplying Liquidity becomes cheaper.

Suddenly it is easier to supply liquidity as the Federal Reserve can feign a pivot until the next meeting, in order to provide a short term period of aid to banks.

Simultaneously, the Federal Reserve could use the threat of a bank run as a disinflationary force, discouraging investment in new projects. 

If Powell doesn't raise rates, asset prices rise, the dollar falls, assets on bank balance sheets increase in value and liabilities decrease. Supplying Liquidity becomes cheaper.

If Powell raises rates, it goes against his earlier market actions. Increasing the money supply while raising the price of money is risky. He'll have to boost liquidity for regional banks later.

https://twitter.com/sherlock_hodles/status/1636765095140405248?s=20

A 25 basis point hike is the most likely outcome, should he choose to raise rates. Raising rates in the face of adversity is a brilliant way to continue the fight against inflation.

I would love to see the Federal Reserve hold rates where they are, rather than raise them while providing liquidity. This would be the event needed to send Ether & Bitcoin into their next holding patterns somewhere north of 2000 & 30000 respectively.

Either way, I will be biting my nails waiting on this meeting later this week on Wednesday March 22, 2023.