Yields on 6-month T-bills have returned to where they were before Silicon Valley Bank's demise. This makes sense, since traders are currently pricing in a 74% chance of the Fed hiking rates by 25bp on May 3. The problem is that things are changing rapidly under the surface:
There's been the biggest decline in commercial lending in a two-week span in data going back to the 1970s. And the flight of deposits has accelerated, and will continue doing so. Chart via Apollo's Torsten Slok on the $900 billion outflow since the Fed started raising rates:
But inflation gauges aren't deflating much. The effects of this credit tightening will take some time. In fact, used car prices started rising again in Marh, which will push the Fed to raise rates more, all things being equal: publish.manheim.com
So the dilemma for the Fed: keep raising rates in the face of still-hot inflation data, even though that could cause more significant economic damage, or hold steady and possibly allow inflation to get more entrenched.
*March
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