The banking crisis is in its early stages and the Fed should opt for a 'hawkish pause' to rate hikes, former Dallas Fed President says
The first phase of the upheaval among small and mid-sized banks was centered on the issue of asset-liability mismatch, with banks over-invested in long-term US Treasury debt and bank equity marked down because of that, said Kaplan, who once served as vice chairman as Goldman Sachs.
"We've got the credit issues yet to come. We're at a different stage in the cycle. And there's also potential deposit instability down the road when those credit issues start to unfold," he said."I would say we're in the second or third inning of this situation, not the seventh inning," he said."The credit phase I think normally is more serious."
In terms of the Fed,"let's say they raise then pause, or they pause and and signal a so-called hawkish pause, either way, the rhetoric needs to be that the Fed stands ready to raise rates," said Kaplan. "We've raised a lot very quickly. We want to absorb and digest some of it. I think people will understand it, think it's prudent. I think the markets will understand that message if they give that message," said Kaplan, who served president of the Dallas Fed in 2015 through October 2021. He left his position
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