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HomeVideoBloomberg: 25 Bps Fed Rate Hike Makes Sense Right Now: BofA's Gapen

Bloomberg: 25 Bps Fed Rate Hike Makes Sense Right Now: BofA’s Gapen

“The Fed can chew gum and walk at the same time,” Michael Gapen, BofA Securities head of US economics, says while addressing the Fed’s handling of the SVB crisis while keeping an eye on the broader economy. He speaks during an interview with Jonathan Ferro on “Bloomberg The Open.”

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Bit of Ace Mike gaffen has this to say we retain our outlook for monetary policy a 25 basis point hike in March terminal 525 to 550 ongoing balance sheet runoff Mike gape and you wrote that before the CPI print have you edited it at all

Uh no I I haven’t um I we just think of if the further as you mentioned in your previous segment if they’re successful and kind of ring fencing and containing the financial stress for the moment the broader macro environment whether it’s jobs inflation activity consumer spending still supports higher policy

Rates so we we think the fed’s inclined to keep that in track uh next week and we look for them to lift the policy rate by 25 basis points and continue with balance sheet runoff obviously that’s day to day right now dependent on on Market events but that’s that was our

View yesterday it’s our view today Mike why don’t you think this svb issue screams you’re breaking stuff you’ve done enough with sufficiently restrictive well I certainly think it is a signal that Financial conditions have tightened there was a building narrative that the U.S economy was impervious or immune to

Higher interest rates and and and certainly parts of the economy are resilient to in a consumer spending has has maintained a lot of momentum but there’s other parts in the economy housing business spending uh manufacturing output and and certainly you know what we’re seeing now would potential spillover into lending

Conditions that do reflect the tightening and uh in in financial conditions from uh from the Fed so I I think it does tell you policy is restrictive and we’ll find out like where exactly sufficiently restrictive is I do think higher policy rates are warranted but yes the events in recent

Days do tell us fed policy matters and and when you raise rates this fast so you sometimes get these Financial stress events and we’re getting one right now Mike something came up today and I’d love your response to it I know we can Tire Sampson knots thinking too deeply

About all this stuff but just a psychological story that this fed has to confront on the fomc next week it was suggested to me this morning by two people preemisra TD Vincent Reinhardt address and melon who suggested there was a psychological element to this that if the Federal Reserve didn’t continue

Hiking there was some kind of acknowledgment that what they had announced on Sunday wasn’t sufficient and therefore they had to back away a monetary policy is there anything in that for you I mean I I would say a little I you know I think in defense of the fed the fact

That these two things are happening so close together the stress event and the meeting uh makes it makes it hard I think to if they don’t hike to say oh then the ring fencing isn’t isn’t sufficient I mean they just stood up these systemic risk tools on on Sunday

Night and today’s Tuesday so if they had to pause in in March they could certainly do that and I don’t think it would be an indictment of the tools that they’ve put into place um if obviously if there were more space between the event and the meeting

There’d be more time for things to to cool down but the bigger principle the FED can chew gum and walk at the same time it can use its lender of Last Resort tools to quell Financial Market you know stress and it can also keep its broader eye on the macro economy so the

Feds trying to do that walking shoe gum right now we’ll see if they can I I think they can do it Michael go to squeeze this in we’ve got 30 seconds left if chairman Powell had day one a testimony in front of the Senate today like he did time last week how different

Would that address have been probably not so much focused on returning to a faster Pace but yes a more kind of balanced assessment of dealing with stresses on one side but still needing tighter monetary conditions on on the other and I do think it supports just you know moderate

Rate increases until we figure out what the right rate is so I think 25 makes sense for now




  1. Inflation is the only target for Mr Powell. Banking, economy and investors funds are not the part of this world. They are born rich, their death is of no value in front of Mr Powells inflation targets. Great going, better to hike 2000 basis points in one go and go off to sleep happily. Let others go into permanent coma. This is really what you want

  2. Fed supporting the banks which have collapsed financially, they need to print more to sustain the help they can provide. Can you seriously think .25 bps be the hike?

  3. Good discussion. Thank You. Balanced assessment. The Fed will raise 25bps. $700b in losses on the books is starting to look daunting. I question the impact of the latest increases. It will take time to realise.

  4. It would be an indictment. It would mean that the bank collapses were that serious and that there is a bigger systemic risk and that it outweighs bringing inflation down.


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