On Twitter:
The tweet is a long form one.
Full Text:
The @federalreserve should pause on Wednesday. We have had a number of major shocks to the system. Three US bank closures in a week wiping out equity and bond holders. The demise of Credit Suisse and the zeroing of its junior bondholders. Notably, bondholders bearing losses is a new phenomenon as they were protected in the GFC.
@firstrepublic depositors that haven’t left already will not be comforted by today’s stock price performance. This banking crisis remains unresolved and higher rates won’t help.
We don’t yet know where the losses are for investors in these institutions and what the contagion effects may be. Deposits have become unstable. What regional bank is going to commit meaningful capital to new construction or business loans in this context?
The effect of the above is a meaningful tightening of financial conditions that has not yet been visible in light of the rapidly unfolding events of the last two weeks.
Inflation is still a problem and the Fed needs to continue to show resolve. Powell can do this by pausing and making very clear that this is a temporary pause so that the impact of recent events can be assessed. He can make clear that his intent is to resume raising rates at the next meeting unless the banking crisis remains unresolved, and has on its own sufficiently slowed the economy.
I continue to believe that the best course of action is a temporary @FDICgov deposit guarantee until an updated insurance regime is introduced, for if bank number five is closed, the market’s attention will move to banks six, seven and eight.
Unfortunately, the data on every banks assets, liabilities and deposits are publicly available and the stock market has been a perfect indicator of who comes next.
This is not an environment into which the @federalreserve should be raising rates and adding additional pressure on the system as financial stability is the Fed’s first responsibility.
Bolding above is mine
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Bill Ackman is CEO of hedge fund firm Pershing Square. As such there may very well be some book talking going on here, no?
