In this Bloomberg appearance, Axonic Capital Director of Research Peter Cecchini is featured to discuss the potential policy conflict between targeting inflation and addressing financial instability. He believes that the current banking malaise can be attributed, in part, to inflation that has resulted from very low interest rates. This has led to deteriorating asset quality and significant volatility in deposits.
Cecchini suggests that if the Federal Reserve allows inflation to persist and rates have to be raised further in the future, it could worsen the banking crisis. Despite the interconnectedness of these issues, the Fed needs to separate them and make decisions accordingly. He also thinks the Fed will raise rates by 25 basis points but will adopt a less hawkish stance than before. The equity markets, however, anticipate a more dovish approach from the Fed, and Cecchini suggests that even with a dovish position, a 25 basis points increase could have negative implications for equity markets.
See more news and updates from Axonic Capital on our News & Media page.