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5 thoughts heading into March FOMC decision day. Is +25bp bullish or bearish? It's both, but stocks might rally anyways

On the eve of the very consequential March Fed FOMC decision (Wed 2pm ET press conf), many investors are confounded by the relative resilience of stocks (down <2% from pre-SVB highs) versus the carnage in credit world (where many macro credit funds experienced black swan-like drawdowns). And this even as the banking crisis is still an "oozing leak."

We have 5 observations into this FOMC day:

#1: Fed path has changed. This is not in doubt. At some point in 2023, the Fed was expected to take rates to 5.50% or higher (Dec 2023 FF) and this has now tanked to 4.365% by YE. A full 110bp lower and below the current Fed Funds of 4.58%. Why? With the fullness of time, we expect this to be more than responding to the bank crisis, but rather the trajectory of inflation has legged lower. The regional bank crisis will tighten credit. The start-up disruption is hurting job growth. And focus on bank stability means consumer focus on inflation is arguably "dead in its tracks."#2: Regulators taking steps to prevent further bank panic = solid step to contain crisis. Treasury Secretary Yellen spoke at the ABA (American Bankers Association) yesterday and spoke of willingness to extend deposit insurance beyond $250,000. This is a first step towards allaying fears of a widening o...

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