Now That the Fed Broke Something, Traders Blow Up Rate-Hike Bets
- SVB collapse shows banking sector vulnerable to Fed policy
- Demise fuels debate on whether Fed hikes hitting real economy
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One year after the Federal Reserve started frantically raising interest rates, the collapse of Silicon Valley Bank answered what had become perhaps the hottest question on Wall Street: When is something going to break?
Its seizure by regulators, which marked the biggest bank failure since the 2008 crisis, is triggering a rapid recalculation on trading desks of how willing the Fed will be to keep tightening to tame inflation. Traders are now betting that the Fed will hike just once more or not at all this year — a staggering about-face from speculation last week about how large the next increase would be. What’s more, they’re reviving wagers that officials will be forced to start cutting rates before the year is over.