Main Takeaway

The failures of Silicon Valley Bank – the second largest in U.S. history – and Signature Bank have heightened risks to the financial system. Despite the banking turmoil, the Federal Reserve remains focused on bringing down inflation.

Top Risks

If the Fed continues to raise interest rates, or keeps rates higher for longer, it could cause more financial distress. On the other hand, if it does not, inflation may become more difficult to subdue. Tight labor markets and potential economic slowdown threaten corporate profits, while geopolitical tensions and the debt ceiling continue to loom.

Sources of Stability

The bond market has rallied on the prospect that the Fed will be slower to raise rates. Workers continue to see strong growth in wages, and the labor market is about the tightest it has ever been. State finances are in a strong position, putting them in better shape to withstand a possible recession.

For our latest perspectives on markets and economic conditions, view our Quarterly Outlook for Q2 2023.

For informational and educational purposes only and should not be construed as specific investment, accounting, legal or tax advice. Certain information is based upon third party data, which may become outdated or otherwise superseded without notice. Third-party information is deemed to be reliable, but its accuracy and completeness cannot be guaranteed. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio nor do indices represent results of actual trading. Information from sources deemed reliable, but its accuracy cannot be guaranteed. Performance is historical and does not guarantee future results. Neither the Securities and Exchange Commission (SEC) nor any other federal or state agency have approved, determined the accuracy, or confirmed the adequacy of this article.

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