The excellent Steven Blitz at TSLombard. My own view is that the Fed has done enough. All it needs to do now is let the credit crunch take its toll before any major rescue.
The decision to hike 25BP or not on Wednesday is not an easy one, and the flow of events suggests not – even though they should. This Fed has been hiking but looking to stop from the get-go, always afraid of the consequences it said its policy was seeking to create – lower real growth and higher unemployment. By not hiking the FOMC will also confirm the market’s fear of a widening banking collapse ala 2008. What will be revealed in time is not a weak banking system but trouble in the tech sector that reverberates through some parts of the financial system. There is no way of knowing today the size of tech’s problems and how deep it’s impact because the sector is filled with private firms borrowing from private intermediaries sourcing private monies – there is no data or regulatory reach. We are, however, certain that much of the world has also invested in the US tech industry, making the impact global. Tech is not as large as housing, or as leveraged, by borrower or lender. What tech has in common with housing is that tech has been this cycle’s sector that is distorted by the flow of easy money since the 08-09 recession ended.
Every cycle has its poster-child, centre of the downturn.
