Central banks need to steady their course despite choppy weather
Much ado about nothing? Hardly. The loss of Credit Suisse, and the wipeout of Coco bond holders, will have consequences for years to come – but for now at least it appears as if the guardrails are holding.
Attention will now inevitably turn to the Federal Reserve and, the day after, the Bank of England. Both would be unwise, in our view, to change from the flagged course of continued rate hikes.
It is an easier decision for Andrew Bailey et al. The Bank and others have spent the week telling anybody who will listen that the British banks are robust, safe and sound, and well set to fight off anything thrown at them.
It would defy logic then to pause on a 25 basis points hike, inevitably sending the signal to a still skittish City that there might be some nasties lurking on the balance sheet. Bailey has given himself wriggle room to pause but it would be a show of faith in a better-than-expected economic climate and in our banking sector to keep the pressure on.
The US has other issues. There remain fears that the wobbling First Republic Bank remains something of a canary in the coal mine for other regional banks which despite their limited geographical reach could easily become top-five all-time banking failures.
The squeeze on lending in the US is likely too to be tighter than on this side of the Atlantic; with the obvious after-effects on the economy. But even then, Jay Powell has more to think about than the domestic picture. On balance; it too would be better advised to push ahead with business as normal.