With the risk of a banking crisis roiling investors, the latest developments included signs that the crisis would be contained, and the chance of a contagion and systemic threat to the U.S. economy subsided.
Retail sales data from the U.S. Census Bureau showed the economy cooled in February. Estimated retail and food services sales for February 2023, adjusted for seasonal variations but not for price changes, were $697.9 billion, down 0.4% from January.
The Producer Price Index for Final Demand, a monthly measure of inflation -- prices paid at the wholesale level by suppliers – decreased 0.1 percent in February, seasonally adjusted, the U.S. Bureau of Labor Statistics reported Wednesday.
Credit Suisse, the second largest bank in Switzerland and 45th-largest bank worldwide, after suffering a 25% decline in its stock price and sparking double-digit losses Wednesday in the hare prices of some of Europe’s largest banks, received an important assurance that Swiss regulators would provide financial support if needed. “Credit Suisse meets the capital and liquidity requirements imposed on systemically important banks,” the Swiss National Bank (SNB) and Swiss Financial Market Supervisory Authority (FINMA) said in a joint statement Wednesday afternoon before Wall Street closed for trading. “If necessary, the SNB will provide CS (Credit Suisse) with liquidity.” The regulators also said problems of banks in the U.S. “do not pose a direct risk of contagion for the Swiss financial markets.”
The collapse of Silicon Valley Bank and several regional banks in recent days has triggered concerns about the financial stability of the U.S. banking system. The Conference Board (TCB), a think tank and lobbying group for large U.S. companies, said Wednesday it was unlikely to grow into a financial contagion that quickly engulfed U.S. financial institutions in 2008. “While we do not think this risk is immaterial, we do not expect the contagion to spread broadly through the banking system,” said TCB economist, Erik Lundh, at a briefing for C-suite executives and corporate economists. “The direct macro implications should be minimal. However, there may be implications for US monetary policy. “
The impact on monetary policy is unlikely to clear up before the afternoon of Wednesday, March 22, after the Federal Reserve’s next two-day meeting of policymakers. Before the bank failure fright erupted last week, the Fed had been expected to announce a .50% rate hike. But the failures at SVB, Silvergate, and Signature and plunge in the stock price of Republic Bank & Trust Company in recent days is thought to have a chilling effect on the economy about equivalent to two half-point rate hikes by the Fed. Some leading economists expect the Fed will pause its rate hike campaign, while others expect a .25% hike next week; some say the Fed will resume its rate hike campaign in April, while others say no more rate hikes are likely and a rate cut could occur as early as June. The stock and bond markets are likely to continue to experience higher than normal volatility until the rate hike and inflation forecast clear up this spring.