SVB Demise Won’t Bring Interest Rates Down: Don’t Get Your Hopes Up
• The Federal Reserve’s Bank Term Funding Program (BTFP) is a backstop for banks and could enable the Fed to raise interest rates.
• Crypto markets have experienced a surge over the past few days, despite a wave of bank failures in the last week.
• Markets may still be overlooking the implications of the BTFP, which could undermine the current “bad news is good news” environment.
Fed’s BTF Program: A Double-Edged Sword
The Federal Reserve’s new Bank Term Funding Program (BTF) is designed to provide a backstop for banks, but it also has an unintended consequence – it gives the Fed license to let interest rates rip. Crypto markets have seen an unexpected surge recently, despite a wave of bank failures in the last week, indicating that markets may still be underestimating how this program could affect interest rate hikes.
Crypto Surge Despite Bank Failures
Cryptocurrency markets have seen over 20% growth since late Sunday while stocks have been down sharply as banking woes expand into Europe – with only small gains on Tuesday between Monday’s open and close. This indicates that bad news about real economy is being interpreted as bullish for asset markets given how it might reduce chances of a Federal Reserve rate hike.
Implications Of The BTF Program
However, what markets may not be taking into account is how the BTFP will make it easier for the Fed to further raise interest rates. This means that even if bad news about real economy appears as favorable for asset prices initially, any subsequent rise in interest rates due to easier access would be detrimental for investors seeking long-term returns from these assets.
Why Interest Rates Matter To Investors
Interest rates are important indicators of investor sentiment and can impact investments directly or through inflationary pressure on securities and commodities prices. Low interest rates allow investors more room to take risks while high interest rates encourage savings and can lead to lower asset prices in general due to increased cost of capital associated with borrowing money or carrying debt loads.
Conclusion: Don’t Get Your Hopes Up
The takeaway here is that any positive reaction in crypto markets due to bad news about real economy should be tempered by understanding how further raising of interests through programs like BTF can eventually put downward pressure on prices again over time – therefore don’t get your hopes up just yet when it comes to expecting lower interest rates from SVB’s demise alone!