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.
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.
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