Williams was the highlight yesterday and had some interesting viewpoints. Certainly hawkish when saying that “lower commodity prices and receding supply chain issues will not be enough by themselves to bring inflation back to our 2% objective”. He sees inflation at 3% by the end of next year with unemployment at 4.5% in the same timeline. He did however give a nod to the Fed pain trade when he said that tighter financial conditions via higher borrowing and mortgage rates as well as lower equity prices are starting to constrain people’s ability to spend.
Obviously a lot of chatter regarding Credit Suisse and their CDS price performance. Yes the CDS has moved significantly but it’s still pricing in a very low chance of a default in the next year. Equally the bank’s capital tier ratios are well above what the Swiss regulator and the Basel accord call for so the bank is well capitalised. However we have also seen a shift up in CDS for most banks and when that starts to gain momentum then there is a systemic risk as it can then precipitate a freezing on interbank lending and that’s when the Fed’s swap lines will get rolled out. Something to keep an eye on.
Obviously a lot of chatter regarding Credit Suisse and their CDS price performance. Yes the CDS has moved significantly but it’s still pricing in a very low chance of a default in the next year. Equally the bank’s capital tier ratios are well above what the Swiss regulator and the Basel accord call for so the bank is well capitalised. However we have also seen a shift up in CDS for most banks and when that starts to gain momentum then there is a systemic risk as it can then precipitate a freezing on interbank lending and that’s when the Fed’s swap lines will get rolled out. Something to keep an eye on.